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Inventories, Employment and Hours

Author

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  • Galeotti, Marzio

    () (University of Milan)

  • Maccini, Louis J.

    () (Johns Hopkins University)

  • Schiantarelli, Fabio

    () (Boston College)

Abstract

The purpose of this paper is to develop a model that integrates inventory and labor decisions. We extend a model of inventory behavior to include a detailed specification of the role of labor input in the production process and of the costs associated with it. In particular, we distinguish between employment, hours and effort per worker, and allow for adjustment costs associated with employment changes. We assume that the requirement function for effective hours has a general trans-logarithmic form, and derive an estimable system of Euler equations for inventories and employment with implied cross-equation restrictions. The econometric results shed light on several important topics, including the shape of the marginal cost of output and the role of labor hoarding as an explanation of procyclical productivity and the persistence of inventory stocks. Moreover, they raise questions about the adequacy of commonly used specifications such as Cobb-Douglas approximations to the production process and the definition of labor input as the product of employment and effective hours worked per worker.

Suggested Citation

  • Galeotti, Marzio & Maccini, Louis J. & Schiantarelli, Fabio, 2002. "Inventories, Employment and Hours," IZA Discussion Papers 458, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp458
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    References listed on IDEAS

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    Cited by:

    1. Adam Copeland & George Hall, 2011. "The response of prices, sales, and output to temporary changes in demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(2), pages 232-269, March.
    2. Piccirilli, Giulio, 2009. "Contingent worksharing," Research in Economics, Elsevier, vol. 63(2), pages 135-143, June.
    3. Bils, Mark, 2016. "Deducing markups from stockout behavior," Research in Economics, Elsevier, vol. 70(2), pages 320-331.
    4. Ghali, Moheb, 2005. "Measuring the convexity of the cost function," International Journal of Production Economics, Elsevier, vol. 93(1), pages 87-99, January.
    5. Yi Wen, 2005. "Labor hoarding and inventories," Working Papers 2005-040, Federal Reserve Bank of St. Louis.
    6. Leonardo Auernheimer & Danilo Trupkin, 2014. "The Role of Inventories and Capacity Utilization as Shock Absorbers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(1), pages 70-85, January.

    More about this item

    Keywords

    procyclical productivity; labor adjustment costs; hours; employment; Inventories;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • 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
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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