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Aggregate Employment Dynamics: Building from Microeconomic Evidence

  • Ricardo J. Caballero
  • Eduardo Engel

    ()

  • John Haltiwanger

This paper studies quarterly employment flows of approximately 10,000 large U.S. manufacturing establishments. We use establishments' hours-week to construct measures of the deviation between desired and actual employment and then we use these as the state variables upon which units decide their employment adjustments. The main findings are: (i) Microeconomic adjustments functions are non-linear, with firms adjusting disproportionately to large shortages. (ii) Adjustments are often either large or nil, suggesting the presence of nonconvexities in the adjustment cost technologies. (iii) The bulk of average employment fluctuations is accounted for by aggregate rather than reallocation shocks. (iv) Microeconomic nonlinearities amplify the aggregate impact aggregate shocks.

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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 6.

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Date of creation: 1996
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Handle: RePEc:edj:ceauch:6
Contact details of provider: Web page: http://www.dii.uchile.cl/cea/

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  1. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
  2. Abraham, Katharine G. & Katz, Lawrence F., 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Scholarly Articles 3442781, Harvard University Department of Economics.
  3. Timothy F. Bresnahan & Valerie A. Ramey, 1994. "Output Fluctuations at the Plant Level," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 593-624.
  4. Eberly, J.C., 1990. "Adjustment of Consumers'durables Stocks: Evidence from Automobile Purchases," Weiss Center Working Papers 22-91, Wharton School - Weiss Center for International Financial Research.
  5. Ricardo J. Caballero & Mohamad L. Hammour, 1996. "On the Timing and Efficiency of Creative Destruction," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 805-852.
  6. Matthew D. Shapiro, 1984. "The Dynamic Demand for Capital and Labor," Cowles Foundation Discussion Papers 735, Cowles Foundation for Research in Economics, Yale University.
  7. Andrew Caplin & John Leahy, 1991. "State-Dependent Pricing and the Dynamics of Money and Output," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 683-708.
  8. Dale Mortensen & Christopher Pissarides, 1992. "The Cyclical Behavior of Job Creation and Job Destruction," Discussion Papers 982, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 819-863.
  10. Giuseppe Bertola & Ricardo J. Caballero, 1990. "Kinked Adjustment Costs and Aggregate Dynamics," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 237-296 National Bureau of Economic Research, Inc.
  11. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1991. "Dynamic (S,s) Economies," NBER Working Papers 3734, National Bureau of Economic Research, Inc.
  12. Ricardo J. Caballero & Eduardo M. R. A. Engel, 1993. "Microeconomic Adjustment Hazards and Aggregate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 108(2), pages 359-383.
  13. Daniel S. Hamermesh, 1988. "Labor Demand and the Structure of Adjustment Costs," NBER Working Papers 2572, National Bureau of Economic Research, Inc.
  14. Ricardo J. Caballero & Mohamad L. Hammour, 1991. "The Cleansing Effect of Recessions," NBER Working Papers 3922, National Bureau of Economic Research, Inc.
  15. Robert E. Hall, 1991. "Labor Demand, Labor Supply, and Employment Volatility," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 17-62 National Bureau of Economic Research, Inc.
  16. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
  17. Caplin, Andrew S, 1985. "The Variability of Aggregate Demand with (S, s) Inventory Policies," Econometrica, Econometric Society, vol. 53(6), pages 1395-1409, November.
  18. Mortensen, Dale T., 1994. "The cyclical behavior of job and worker flows," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1121-1142, November.
  19. Sargent, Thomas J, 1978. "Estimation of Dynamic Labor Demand Schedules under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1009-44, December.
  20. Alan S. Blinder, 1981. "Retail Inventory Behavior and Business Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 443-520.
  21. Ricardo J. Caballero, 1991. "A Fallacy of Composition," NBER Working Papers 3735, National Bureau of Economic Research, Inc.
  22. Caballero, Ricardo J & Engel, Eduardo M R A, 1992. "Beyond the Partial-Adjustment Model," American Economic Review, American Economic Association, vol. 82(2), pages 360-64, May.
  23. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, March.
  24. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  25. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December.
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