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Models of labour demand with fixed costs of adjustment: a generalised tobit approach


  • Francesca Di Iorio

    () (Dipartimento di Scienze Statistiche - Universita' degli Studi di Napoli Federico II)

  • Stefano Fachin

    () (Facolta' di Scienze Statistiche, Universita'' degli Studi di Roma "La Sapienza")


Traditional models of factor demand rely upon convex and symmetric adjustment costs: however, the fortune of this highly restrictive model is due more to analytical convenience than to actual empirical relevance. In this note we first examine the model of employment adjustment under the more realistic hypothesis of fixed costs, show that it can be cast in the form of a Double Censored Random Effect Tobit Model, derive its likelihood function, and finally evaluate the empirical performance of the ML estimators through a Monte Carlo experiment. The performances, although strongly dependent on the degree of censoring, appear promising.

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  • Francesca Di Iorio & Stefano Fachin, 2004. "Models of labour demand with fixed costs of adjustment: a generalised tobit approach," Economics Bulletin, AccessEcon, vol. 3(31), pages 1-8.
  • Handle: RePEc:ebl:ecbull:eb-04c50002

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    References listed on IDEAS

    1. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, vol. 79(4), pages 674-689, September.
    2. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
    3. Dagenais, Marcel G, 1975. "Application of a Threshold Regression Model to Household Purchases of Automobiles," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 275-285, August.
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    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling


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