IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Lumpy Labor Adjustment as a Propagation Mechanism of Business Cycles

  • Fang Yao
Registered author(s):

    I explore the aggregate effects of micro lumpy labor adjustment in a prototypical RBC model, which embeds a stochastic labor duration mechanism in the spirit of Calvo(1983), and it extends this approach by introducing a Weibull-distributed labor adjustment process to capture the increasing hazard function corroborated by the micro data. My principal findings are: The aggregate labor demand equation derived from the baseline Calvostyle model corresponds to the same reduced form as the quadratic-adjustment-cost model and deep parameters have a one-to-one mapping. However, this result does not hold in general. When introducing the Weibull labor adjustment, the aggregate dynamics vary with the extent of increasing hazard function, e.g., the volatility of aggregate labor is increasing, but the persistence is decreasing in degree of the increasing hazard of the labor adjustment.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2008-056.pdf
    Download Restriction: no

    Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2008-056.

    as
    in new window

    Length: 31 pages
    Date of creation: Aug 2008
    Date of revision:
    Handle: RePEc:hum:wpaper:sfb649dp2008-056
    Contact details of provider: Postal:
    Spandauer Str. 1,10178 Berlin

    Phone: +49-30-2093-5708
    Fax: +49-30-2093-5617
    Web page: http://sfb649.wiwi.hu-berlin.de
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Robert E. Hall, 2003. "Wage Determination and Employment Fluctuations," NBER Working Papers 9967, National Bureau of Economic Research, Inc.
    2. Aubhik Khan & Julia K. Thomas, 2006. "Idiosyncratic Shocks and the Role of Nonconvexities in Plant and Aggregate Investment Dynamics," 2006 Meeting Papers 294, Society for Economic Dynamics.
    3. Marcelo Veracierto, 1998. "Plant level irreversible investment and equilibrium business cycles," Working Paper Series WP-98-1, Federal Reserve Bank of Chicago.
    4. Finn E. Kydland, 1993. "Business cycles and aggregate labor-market fluctuations," Working Paper 9312, Federal Reserve Bank of Cleveland.
    5. Robert G. King & Julia K. Thomas, 2006. "Partial Adjustment Without Apology," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 779-809, 08.
    6. Daniel S. Hamermesh, 1988. "Labor Demand and the Structure of Adjustment Costs," NBER Working Papers 2572, National Bureau of Economic Research, Inc.
    7. Julia K. Thomas, . "Is Lumpy Investment Relevant for the Business Cycle?," GSIA Working Papers 1998-E250, Carnegie Mellon University, Tepper School of Business.
    8. Peter Howitt & R. Preston McAfee, 1988. "Stability of Equilibria with Externalities," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 261-277.
    9. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
    10. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
    11. Greenwood, Jeremy & Hercowitz, Zvi, 1991. "The Allocation of Capital and Time over the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1188-214, December.
    12. Varejão, José & Portugal, Pedro, 2006. "Employment Dynamics and the Structure of Labor Adjustment Costs," IZA Discussion Papers 1922, Institute for the Study of Labor (IZA).
    13. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    14. Stephen Nickell & Luca Nunziata, 2000. "Employment patterns in OECD countries," LSE Research Online Documents on Economics 20198, London School of Economics and Political Science, LSE Library.
    15. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
    16. 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.
    17. Benhabib, J. & Farmer, R.E.A, 1991. "Indeterminacy and Increasing Returns," Papers 165, Cambridge - Risk, Information & Quantity Signals.
    18. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
    19. Burnside, Craig & Eichenbaum, Martin, 1996. "Factor-Hoarding and the Propagation of Business-Cycle Shocks," American Economic Review, American Economic Association, vol. 86(5), pages 1154-74, December.
    20. Caballero, Ricardo J & Engel, Eduardo M R A & Haltiwanger, John, 1997. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," American Economic Review, American Economic Association, vol. 87(1), pages 115-37, March.
    21. Hamermesh, Daniel S. & Pfann, Gerard Antonie, 1996. "Adjustment Costs in Factor Demand," CEPR Discussion Papers 1371, C.E.P.R. Discussion Papers.
    22. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," RCER Working Papers 467, University of Rochester - Center for Economic Research (RCER).
    23. Yongsung Chang & Joao F. Gomes & Frank Schorfheide, 2002. "Learning-by-Doing as a Propagation Mechanism," American Economic Review, American Economic Association, vol. 92(5), pages 1498-1520, December.
    24. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
    25. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
    26. Letterie, Wilko A. & Pfann, Gerard A. & Polder, J. Michael, 2004. "Factor adjustment spikes and interrelation: an empirical investigation," Economics Letters, Elsevier, vol. 85(2), pages 145-150, November.
    27. Robert Shimer, 2003. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies: Evidence and Theory," NBER Working Papers 9536, National Bureau of Economic Research, Inc.
    28. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
    29. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
    30. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
    31. Michele Boldrin & Lawrence J. Christiano & Jonas D. M. Fisher, 2000. "Habit persistence, asset returns and the business cycle," Staff Report 280, Federal Reserve Bank of Minneapolis.
    32. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
    33. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    34. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
    35. Tommy Sveen & Lutz Weinke, 2005. "Is lumpy investment really irrelevant for the business cycle?," Working Paper 2005/6, Norges Bank.
    36. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:hum:wpaper:sfb649dp2008-056. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RDC-Team)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.