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The Cost of Labor Adjustment: Inferences from the Gap

  • Russell Cooper

    (University of Texas)

  • Jonathan Willis

    (Federal Reserve Bank of Kansas City)

This paper studies the aggregate implications of micro-level labor adjustment costs. Caballero and Engel (1993) find a dependence of aggregate employment growth on the cross sectional distribution of "employment gaps." This paper uses those results as moments in an indirect inference procedure to infer the underlying labor adjustment costs. We specify a dynamic optimization problem at the plant level, allowing for both convex and non-convex adjustment costs. Consistent with evidence at the micro level, our findings indicate that non-convex adjustment costs are necessary to match these aggregate moments. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2008.12.001
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 12 (2009)
Issue (Month): 4 (October)
Pages: 632-647

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Handle: RePEc:red:issued:06-149
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  1. Russel W. Cooper & John C. Haltiwanger & Jonathan Willis, 2004. "Dynamics of Labor Demand: Evidence from Plant-level Observations and Aggregate Implications," NBER Working Papers 10297, National Bureau of Economic Research, Inc.
  2. Jerome Adda & Russell Cooper, 1997. "Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies," NBER Working Papers 6048, National Bureau of Economic Research, Inc.
  3. Russell Cooper & Jonathan L. Willis, 2003. "The economics of labor adjustment : mind the gap," Research Working Paper RWP 03-05, Federal Reserve Bank of Kansas City.
  4. Ricardo J. Caballero & Eduardo Engel & John Haltiwanger, 1996. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," Documentos de Trabajo 6, Centro de Economía Aplicada, Universidad de Chile.
  5. Pfann, Gerard A & Palm, Franz C, 1993. "Asymmetric Adjustment Costs in Non-linear Labour Demand Models for the Netherlands and U.K. Manufacturing Sectors," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 397-412, April.
  6. Russell Cooper & John Haltiwanger & Laura Power, 1995. "Machine Replacement and the Business Cycle: Lumps and Bumps," NBER Working Papers 5260, National Bureau of Economic Research, Inc.
  7. Contreras, Juan, 2006. "An Empirical Model of Factor Adjustment Dynamics," MPRA Paper 9797, University Library of Munich, Germany.
  8. 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.
  9. Daniel S. Hamermesh, 1988. "Labor Demand and the Structure of Adjustment Costs," NBER Working Papers 2572, National Bureau of Economic Research, Inc.
  10. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Microeconomic Adjustment Hazards and Aggregate Dynamics," NBER Working Papers 4090, National Bureau of Economic Research, Inc.
  11. Thomas J. Sargent, 1978. "Estimation of dynamic labor demand schedules under rational expectations," Staff Report 27, Federal Reserve Bank of Minneapolis.
  12. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
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