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Aggregate Employment Dynamics: Building from Microeconomic Evidence

Author

Listed:
  • 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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    References listed on IDEAS

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    1. Eberly, Janice C, 1994. "Adjustment of Consumers' Durables Stocks: Evidence from Automobile Purchases," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 403-436, June.
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    3. Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 819-863.
    4. Alan S. Blinder, 1981. "Retail Inventory Behavior and Business Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 443-520.
    5. Mortensen, Dale T., 1994. "The cyclical behavior of job and worker flows," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1121-1142, November.
    6. Caballero, Ricardo J, 1992. "A Fallacy of Composition," American Economic Review, American Economic Association, vol. 82(5), pages 1279-1292, December.
    7. Matthew D. Shapiro, 1986. "The Dynamic Demand for Capital and Labor," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 513-542.
    8. Ricardo J. Caballero & Eduardo M. R. A. Engel, 1993. "Microeconomic Adjustment Hazards and Aggregate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 108(2), pages 359-383.
    9. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 507-522, June.
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    17. Timothy F. Bresnahan & Valerie A. Ramey, 1994. "Output Fluctuations at the Plant Level," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 593-624.
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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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    1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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