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Inventories, Employment and Hours

  • Galeotti, Marzio

    ()

    (University of Milan)

  • Maccini, Louis J.

    ()

    (Johns Hopkins University)

  • Schiantarelli, Fabio

    ()

    (Boston College)

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 458.

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Length: 55 pages
Date of creation: Mar 2002
Date of revision:
Publication status: published in: Journal of Monetary Economics, 2005, 52 (3), 575-600
Handle: RePEc:iza:izadps:dp458
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  1. Mark Bils & James A. Kahn, 1999. "What inventory behavior tells us about business cycles," Staff Reports 92, Federal Reserve Bank of New York.
  2. Tauchen, George, 1986. "Statistical Properties of Generalized Method-of-Moments Estimators of Structural Parameters Obtained from Financial Market Data: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(4), pages 423-25, October.
  3. Olivier J. Blanchard, 1982. "The Production and Inventory Behavior of the American Automobile Industry," NBER Working Papers 0891, National Bureau of Economic Research, Inc.
  4. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
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  6. Blinder, Alan S & Maccini, Louis J, 1991. " The Resurgence of Inventory Research: What Have We Learned?," Journal of Economic Surveys, Wiley Blackwell, vol. 5(4), pages 291-328.
  7. Ramey, Valerie A, 1991. "Nonconvex Costs and the Behavior of Inventories," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 306-34, April.
  8. Ray C. Fair, 1984. "Excess Labor and the Business Cycle," NBER Working Papers 1292, National Bureau of Economic Research, Inc.
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  10. Chirinko, Robert S., 1995. "Nonconvexities, labor hoarding, technology shocks, and procyclical productivity a structural econometric analysis," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 61-98.
  11. Maccini, Louis J & Rossana, Robert J, 1984. "Joint Production, Quasi-Fixed Factors of Production, and Investement in Finished Goods Inventories," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 218-36, May.
  12. Sbordone, Argia M., 1996. "Cyclical productivity in a model of labor hoarding," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 331-361, October.
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  17. Kollintzas, Tryphon, 1995. "A generalized variance bounds test with an application to the Holt et al. inventory model," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 59-89.
  18. Fay, Jon A & Medoff, James L, 1985. "Labor and Output over the Business Cycle: Some Direct Evidence," American Economic Review, American Economic Association, vol. 75(4), pages 638-55, September.
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  20. Ramey, Valerie A. & West, Kenneth D., 1999. "Inventories," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 13, pages 863-923 Elsevier.
  21. Matthew D. Shapiro, 1985. "Capital Utilization and Capital Accumulation: Theory and Evidence," Cowles Foundation Discussion Papers 736, Cowles Foundation for Research in Economics, Yale University.
  22. Morrison, C. J. & Berndt, E. R., 1981. "Short-run labor productivity in a dynamic model," Journal of Econometrics, Elsevier, vol. 16(3), pages 339-365, August.
  23. Humphreys, Brad R. & Maccini, Louis J. & Schuh, Scott, 2001. "Input and output inventories," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 347-375, April.
  24. Bernanke, Ben S & Parkinson, Martin L, 1991. "Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 439-59, June.
  25. Julio J. Rotemberg & Michael Woodford, 1999. "The Cyclical Behavior of Prices and Costs," NBER Working Papers 6909, National Bureau of Economic Research, Inc.
  26. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
  27. Martin S. Eichenbaum, 1988. "Some Empirical Evidence on the Production Level and Production Cost Smoothing Models of Inventory Investment," NBER Working Papers 2523, National Bureau of Economic Research, Inc.
  28. Mark Bils & Yongsung Chang, 1999. "Wages and the Allocation of Hours and Effort," NBER Working Papers 7309, National Bureau of Economic Research, Inc.
  29. Jeffrey A. Miron & Stephen P. Zeldes, . "Seasonality, Cost Shocks and the Production Smoothing Model of Inventories," Rodney L. White Center for Financial Research Working Papers 01-87, Wharton School Rodney L. White Center for Financial Research.
  30. Mark Bils & Jang-Ok Cho, 1993. "Cyclical factor utilization," Discussion Paper / Institute for Empirical Macroeconomics 79, Federal Reserve Bank of Minneapolis.
  31. Rossana, Robert J, 1990. "Interrelated Demands for Buffer Stocks and Productive Inputs: Estimates for Two-Digit Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 19-29, February.
  32. Durlauf, S.N. & Maccini, L.J., 1993. "Measuring Noise in Inventory Models," Working papers 9326, Wisconsin Madison - Social Systems.
  33. West, Kenneth D, 1986. "A Variance Bounds Test of the Linear Quadratic Inventory Model," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 374-401, April.
  34. Pindyck, Robert S & Rotemberg, Julio J, 1983. "Dynamic Factor Demands and the Effects of Energy Price Shocks," American Economic Review, American Economic Association, vol. 73(5), pages 1066-79, December.
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  36. Susanto Basu, 1995. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," NBER Working Papers 5336, National Bureau of Economic Research, Inc.
  37. Kocherlakota, Narayana R., 1990. "On tests of representative consumer asset pricing models," Journal of Monetary Economics, Elsevier, vol. 26(2), pages 285-304, October.
  38. Tauchen, George, 1986. "Statistical Properties of Generalized Method-of-Moments Estimators of Structural Parameters Obtained from Financial Market Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(4), pages 397-416, October.
  39. Susanto Basu & Miles S. Kimball, 1997. "Cyclical Productivity with Unobserved Input Variation," NBER Working Papers 5915, National Bureau of Economic Research, Inc.
  40. Haltiwanger, John C. & Maccini, Louis J., 1989. "Inventories, orders, temporary and permanent layoffs: An econometric analysis," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 30(1), pages 301-366, January.
  41. Galeotti, Marzio & Guiso, Luigi & Sack, Brian & Schiantarelli, Fabio, 1997. "Inventories, Production Smoothing and the Shape of the Cost Function," CEPR Discussion Papers 1697, C.E.P.R. Discussion Papers.
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