Linear Adjustment Costs and Seasonal Labor Demand: Evidence from Retail Trade Firms
Standard models of dynamic labor demand rely on the presence of adjustment costs to explain the observed smoothness in employment patterns, although the costs are often difficult to quantify. The experience rating feature of the U.S. unemployment insurance system provides a measurable linear cost of adjustment. Using a unique data set with administrative data on over 8,000 firms, the author estimates the effect of a unemployment-insurance-induced linear adjustment cost on seasonal labor demand in retail trade. She finds strong support for the large role of adjustment costs in reducing the employment response of firms to seasonal fluctuations in demand. Copyright 1993, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Volume (Year): 108 (1993)
Issue (Month): 4 (November)
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