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Aggregate Employment Dynamics: Building from Microeconomic Evidence

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  • Caballero, Ricardo J
  • Engel, Eduardo M R A
  • Haltiwanger, John

Abstract

This paper studies quarterly employment flows of approximately 10,000 U.S. manufacturing establishments. The authors use establishments' hours-week to construct measures of the deviation between desired and actual employment and use these as the establishments' main state variables. The main findings are: (1) microeconomic adjustment functions are nonlinear, with plants adjusting disproportionately to large shortages; (2) adjustments are often either large or nil, suggesting the presence of nonconvexities in the adjustment cost technologies; (3) the bulk of average employment fluctuations is accounted for by aggregate, rather than reallocation, shocks; and (4) microeconomic nonlinearities amplify the impact of large aggregate shocks. Copyright 1997 by American Economic Association.

Suggested Citation

  • Caballero, Ricardo J & Engel, Eduardo M R A & Haltiwanger, John, 1997. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," American Economic Review, American Economic Association, vol. 87(1), pages 115-137, March.
    • Handle: RePEc:aea:aecrev:v:87:y:1997:i:1:p:115-37
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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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