IDEAS home Printed from https://ideas.repec.org/a/bla/labour/v20y2006i4p699-720.html

Modelling Labour Demand Dynamics beyond the Frictionless Environment

Author

Listed:
  • Konstantinos Drakos
  • Christos Kallandranis

Abstract

. In this study we develop a simple econometric model for labour demand dynamics by explicitly considering deviations from the standard frictionless economic environment. In particular, we explore the potential effect on labour demand of capital market imperfections, labour market institutional rigidities in the form of union power, and the impact of uncertainty. In addition, in the presence of uncertainty, adjustment costs and irreversibility emerge as an important factor that introduces an option value of waiting. According to our results, leverage exerts a direct negative impact on employment dynamics indicating that capital market imperfections are indeed present. Moreover, leverage is found to also affect the adjustment process of employment. Finally, we document asymmetric effects of frictions on labour demand across different size groups that imply a higher vulnerability of small and medium sectors with respect to debt levels. Uncertainty exerts a significantly negative impact on labour demand, which is compatible with presence of partial irreversibility of employment decisions. Finally, unions over and above their effect via higher wages are positively related to employment, a finding that is indicative of their pursue for job security.

Suggested Citation

  • Konstantinos Drakos & Christos Kallandranis, 2006. "Modelling Labour Demand Dynamics beyond the Frictionless Environment," LABOUR, CEIS, vol. 20(4), pages 699-720, December.
    • Handle: RePEc:bla:labour:v:20:y:2006:i:4:p:699-720
    DOI: 10.1111/j.1467-9914.2006.00357.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-9914.2006.00357.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-9914.2006.00357.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Robert Carpenter & Laura Rondi, 2000. "Italian Corporate Governance, Investment, and Finance," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 27(4), pages 365-388, December.
    2. Mark Gertler & R. Glenn Hubbard, 1988. "Financial factors in business fluctuations," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 33-78.
    3. Giovanni S.F. Bruno & Anna M. Falzoni & Rodolfo Helg, 2004. "Measuring the effect of globalization on labour demand elasticity: An empirical application to OECD countries," KITeS Working Papers 153, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Feb 2004.
    4. Robert Amano, "undated". "Empirical Evidence on the Cost of Adjustment and Dynamic Labour Demand," Staff Working Papers 95-3, Bank of Canada.
    5. Adriana Cassoni, 1999. "The wage elasticity of labour demand in the Uruguayan manufacturing sector after re-unionisation: new results," Documentos de Trabajo (working papers) 1499, Department of Economics - dECON.
    6. Charles W. Calomiris & Athanasios Orphanides & Steven A. Sharpe, 1994. "Leverage as a state variable for employment, inventory accumulation, and fixed investment," Finance and Economics Discussion Series 94-24, Board of Governors of the Federal Reserve System (U.S.).
    7. Simon Gilchrist & Charles Himmelberg, 1999. "Investment: Fundamentals and Finance," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 223-274, National Bureau of Economic Research, Inc.
    8. Addison, John T. & Teixeira, Paulino, 2001. "Employment Adjustment in Portugal: Evidence from Aggregate and Firm Data," IZA Discussion Papers 391, Institute of Labor Economics (IZA).
    9. Kazuo Ogawa, 2003. "Financial Distress and Employment: The Japanese Case in the 90s," NBER Working Papers 9646, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gregor Bäurle & Sarah M. Lein & Elizabeth Steiner, 2017. "Employment Adjustment and Financial Constraints - Evidence from Firm-level Data," Working Papers 2017-18, Swiss National Bank.
    2. Bäurle, Gregor & Lein, Sarah M. & Steiner, Elizabeth, 2021. "Employment adjustment and financial tightness – Evidence from firm-level data," Journal of International Money and Finance, Elsevier, vol. 115(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrew Benito & Ignacio Hernando, 2003. "Labour demand, flexible contracts and financial factors: new evidence from Spain," Working Papers 0312, Banco de España.
    2. Philip Vermeulen, 2002. "Business fixed investment: evidence of a financial accelerator in Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(3), pages 213-231, July.
    3. Charles W. Calomiris & Inessa Love & Maria Soledad Martinez Peria, 2010. "Crisis "Shock Factors" and the Cross-Section of Global Equity Returns," NBER Working Papers 16559, National Bureau of Economic Research, Inc.
    4. Kazuo Ogawa, 2004. "Debt, R&D Investment and Technological Progress: A Panel Study of Japanese Manufacturing Firms in the 90s," ISER Discussion Paper 0607, Institute of Social and Economic Research, The University of Osaka.
    5. Jason G. Cummins & Kevin A. Hassett & Stephen D. Oliner, 2006. "Investment Behavior, Observable Expectations, and Internal Funds," American Economic Review, American Economic Association, vol. 96(3), pages 796-810, June.
    6. Maria Angelica Arbelaez & Juan Jose Echavarria, 2002. "Credit, Financial Liberalization and Manufacturing Investment in Colombia," Research Department Publications 3145, Inter-American Development Bank, Research Department.
    7. Hubbard, R Glenn & Kuttner, Kenneth N & Palia, Darius N, 2002. "Are There Bank Effects in Borrowers' Costs of Funds? Evidence from a Matched Sample of Borrowers and Banks," The Journal of Business, University of Chicago Press, vol. 75(4), pages 559-581, October.
    8. Gregor Bäurle & Sarah M. Lein & Elizabeth Steiner, 2017. "Employment Adjustment and Financial Constraints - Evidence from Firm-level Data," Working Papers 2017-18, Swiss National Bank.
    9. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95, May.
    10. Anna Bottasso, 1996. "Firms’ Financial Structure And Real Decisions: A Critical Survey Of The Empirical Literature," CERIS Working Paper 199623, CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    11. Inessa Love, 2003. "Financial Development and Financing Constraints: International Evidence from the Structural Investment Model," The Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 765-791, July.
    12. Duygan-Bump, Burcu & Levkov, Alexey & Montoriol-Garriga, Judit, 2015. "Financing constraints and unemployment: Evidence from the Great Recession," Journal of Monetary Economics, Elsevier, vol. 75(C), pages 89-105.
    13. Hirokazu Mizobata & Hiroshi Teruyama, 2020. "Factor Adjustments and Liquidity Management: Evidence from Japan's Two Lost Decades and Financial Crises," KIER Working Papers 1043, Kyoto University, Institute of Economic Research.
    14. Juan Pablo Medina, 2004. "Endogenous Financial Constraints: Persistence and Interest Rate Fluctuations," Working Papers Central Bank of Chile 290, Central Bank of Chile.
    15. Christopher F. Baum & Andreas Stephan & Oleksandr Talavera, 2009. "The Effects Of Uncertainty On The Leverage Of Nonfinancial Firms," Economic Inquiry, Western Economic Association International, vol. 47(2), pages 216-225, April.
    16. R. Glenn Hubbard, 1990. "Introduction to "Asymmetric Information, Corporate Finance, and Investment"," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 1-14, National Bureau of Economic Research, Inc.
    17. Yan, Isabel K. & Chan, Kenneth S. & Dang, Vinh Q.T., 2011. "Financial liberalization and financing constraints: some evidence from panel data of listed Chinese firms," MPRA Paper 35227, University Library of Munich, Germany.
    18. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June.
    19. Oliveira, Fernando N. de & Neto, Alberto Ronchi, 2012. "An empirical analysis of the external finance premium of public non-financial corporations in Brazil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 66(3), October.
    20. Jean-Bernard Chatelain, 2002. "Structural modelling of investment and financial constraints: Where do we stand?," Working Paper Research 28, National Bank of Belgium.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:labour:v:20:y:2006:i:4:p:699-720. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/csrotit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.