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A General Model of Dynamic Labor Demand

  • Hamermesh, Daniel S

This study derives and estimates a dynamic model of factor demand that includes both fixed and quadratic variable costs of adjustment. Using quarterly data on the employment of mechanics at seven airlines, it finds that both types of adjustment costs characterize the dynamic constraints facing employers. Using monthly data covering production-worker employment in seven manufacturing plants, it shows that only fixed costs are important. The apparent diversity of the underlying costs of adjustment means it is difficult to draw useful inferences from macroeconometric estimates. It suggests the importance of examining broader arrays of microeconomic time series describing labor demand.

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Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 74 (1992)
Issue (Month): 4 (November)
Pages: 733-37

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Handle: RePEc:tpr:restat:v:74:y:1992:i:4:p:733-37
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  1. Daniel S. Hamermesh, 1990. "Aggregate Employment Dynamcis and Lumpy Adjustment Costs," NBER Working Papers 3229, National Bureau of Economic Research, Inc.
  2. Robert F. Engle & Ta-Chung Liu, 1972. "Effects of Aggregation Over Time on Dynamic Characteristics of an Econometric Model," NBER Chapters, in: Econometric Models of Cyclical Behavior, Volumes 1 and 2, pages 673-737 National Bureau of Economic Research, Inc.
  3. Nickell, Stephen, 1984. "An Investigation of the Determinants of Manufacturing Employment in the United Kingdom," Review of Economic Studies, Wiley Blackwell, vol. 51(4), pages 529-57, October.
  4. Davidson, Russell & Harris, Richard, 1981. "Non-Convexities in Continuous-Time Investment Theory," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 235-53, April.
  5. Card, David, 1986. "Efficient Contracts with Costly Adjustment: Short-run Employment Determination for Airline Mechanics," American Economic Review, American Economic Association, vol. 76(5), pages 1045-71, December.
  6. Rothschild, Michael, 1971. "On the Cost of Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 605-22, November.
  7. Trivedi, Pravin K, 1985. "Distributed Lags, Aggregation, and Compounding: Some Econometric Implications," Review of Economic Studies, Wiley Blackwell, vol. 52(1), pages 19-35, January.
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