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Sequentiality versus Simultaneity: Interrelated Factor Demand

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Listed:
  • Asphjell, Magne Krogstad

    (Norwegian School of Economics)

  • Letterie, Wilko

    (Maastricht University)

  • Nilsen, Øivind Anti

    (Norwegian School of Economics)

  • Pfann, Gerard A.

    (Maastricht University)

Abstract

A structural model is developed and estimated by a maximum likelihood routine to investigate interrelated factor demand subject to nonconvex adjustment costs. The dataset concerns Norwegian plants operating in manufacturing industries and it covers the period 1993-2005. The estimates indicate that it is advantageous to adjust the stock of labour and capital simultaneously. The cost advantage of simultaneous changes is small for capital but is large for labour. The empirical results suggest that when estimating separate factor demand models the bias of parameter estimates is most severe in case of labour demand.

Suggested Citation

  • Asphjell, Magne Krogstad & Letterie, Wilko & Nilsen, Øivind Anti & Pfann, Gerard A., 2010. "Sequentiality versus Simultaneity: Interrelated Factor Demand," IZA Discussion Papers 5359, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5359
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hirokazu Mizobata, 2014. "Differing factor adjustment costs across industries: Evidence from Japan," KIER Working Papers 885, Kyoto University, Institute of Economic Research.
    2. Amundsen, Alexander, 2023. "Interaction effects in the adjustment cost function of firms," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    3. Domini, Giacomo & Grazzi, Marco & Moschella, Daniele & Treibich, Tania, 2022. "For whom the bell tolls: The firm-level effects of automation on wage and gender inequality," Research Policy, Elsevier, vol. 51(7).
    4. Marco Grazzi & Nadia Jacoby & Tania Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries," GREDEG Working Papers 2013-09, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    5. Rolf Golombek & Arvid Raknerud, 2012. "Exit dynamics of start-up firms. Does profit matter?," Discussion Papers 706, Statistics Norway, Research Department.
    6. Golombek, Rolf & Raknerud, Arvid, 2018. "Exit dynamics of start-up firms: Structural estimation using indirect inference," Journal of Econometrics, Elsevier, vol. 205(1), pages 204-225.
    7. Hirokazu Mizobata, 2015. "Hiring, investments, and financial distress: evidence from a Panel VAR analysis of Japanese firms," Economics Bulletin, AccessEcon, vol. 35(4), pages 2558-2566.
    8. Addison, John T. & Portugal, Pedro & Varejão, José, 2014. "Labor demand research: Toward a better match between better theory and better data," Labour Economics, Elsevier, vol. 30(C), pages 4-11.
    9. Domini, Giacomo & Grazzi, Marco & Moschella, Daniele & Treibich, Tania, 2021. "Threats and opportunities in the digital era: Automation spikes and employment dynamics," Research Policy, Elsevier, vol. 50(7).
    10. Yang, Zhenbing & Shi, Qingquan & Shao, Shuai & Lu, Minwei & Yang, Lili, 2023. "Stricter energy regulations and water consumption: Firm-level evidence from China," Energy Economics, Elsevier, vol. 120(C).
    11. Tang, Le, 2022. "The dynamic demand for capital and labor: Evidence from Chinese industrial firms," Economic Modelling, Elsevier, vol. 107(C).
    12. Yaman, F., 2011. "The costs of adjusting labor: Evidence from temporally disaggregated data," Working Papers 11/10, Department of Economics, City University London.
    13. Yaman, F., 2016. "Structural Estimation of Labor Adjustment Costs," Working Papers 15/22, Department of Economics, City University London.
    14. Enrico D'Elia & Alessandra Righi, 2017. "Firm's level labour intensity in Italy after the Great Recession," Working Papers 1, Department of the Treasury, Ministry of the Economy and of Finance.
    15. Lapatinas Athanasios, 2012. "On the Interrelation of Capital and Labor Adjustment Costs at the Firm Level," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(3), pages 1-36, September.
    16. Yu, Xiaodan & Dosi, Giovanni & Grazzi, Marco & Lei, Jiasu, 2017. "Inside the virtuous circle between productivity, profitability, investment and corporate growth: An anatomy of Chinese industrialization," Research Policy, Elsevier, vol. 46(5), pages 1020-1038.
    17. Mizobata, Hirokazu, 2016. "Differing factor adjustment costs across industries: Evidence from Japan," Economic Modelling, Elsevier, vol. 54(C), pages 382-391.

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    More about this item

    Keywords

    nonconvex adjustment costs; interrelation; capital; labour; factor demand;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • 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
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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