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The Cost of Labor Adjustment: Inferences from the Gap

Author Info

  • Russell Cooper

    (University of Texas)

  • Jonathan Willis

    (Federal Reserve Bank of Kansas City)

Abstract

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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Keywords: Aggregate employment; Employment; Adjustment costs;

Other versions of this item:

Find related papers by 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
  • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
  • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

References listed on IDEAS
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  1. PFANN, Gerard A. & PALM, Franz C., . "Asymmetric adjustment costs in non-linear labour demand models for the Netherlands and U.K. manufacturing sectors," CORE Discussion Papers RP -1044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. 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.
  3. Jerome Adda & Russell Cooper, 1997. "Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies," Papers 0076, Boston University - Industry Studies Programme.
  4. Hamermesh, Daniel S. & Pfann, Gerard Antonie, 1996. "Adjustment Costs in Factor Demand," CEPR Discussion Papers 1371, C.E.P.R. Discussion Papers.
  5. 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.
  6. Russell Cooper & John Haltiwanger & Jonathan L. Willis, 2003. "Dynamics of labor demand : evidence from plant-level observations and aggregate implications," Research Working Paper RWP 03-12, Federal Reserve Bank of Kansas City.
  7. John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
  8. Russell Cooper & Jonathan L. Willis, 2003. "The economics of labor adjustment: mind the gap," Staff Report 310, Federal Reserve Bank of Minneapolis.
  9. Daniel S. Hamermesh, 1988. "Labor Demand and the Structure of Adjustment Costs," NBER Working Papers 2572, National Bureau of Economic Research, Inc.
  10. Contreras, Juan, 2006. "An Empirical Model of Factor Adjustment Dynamics," MPRA Paper 9797, University Library of Munich, Germany.
  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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