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The Demand for Workers and Hours and the Effects of Job Security Policies: Theory and Evidence

  • Daniel S. Hamermesh

There has been a wide variety of research on worker-hours substitution and the effects of various costs on the speed and extent to which labor demand adjusts. Much of this literature, though, confuses various types of fixed costs and fails to provide a guide for identifying how changes in labor-cost structures affect static relative demands for workers and hours and the paths by which they adjust. This study presents a typology of labor cost market policies in OECD countries are pigeonholed by their effects on labor costs are view of the evidence indicates clearly that there is some slight substitution between workers and hours along a constant effective-labor isoquant. The evidence is clear that employers adjust the demand for hours more rapidly than that for workers and that both adjust fairly rapidly. It also shows that a major effect of cost-increasing policies designed to induce substitution from hours to workers is a reduction in the total amount of worker-hours demanded. Original analysis demonstrates that lags in the adjustment of employment in response to changes in demand lengthened in most OECD countries during the 1970s.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2056.

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Date of creation: Oct 1986
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Publication status: published as Employment, Unemployment and Labor Utilization, ed. Robert Hart, pp 9-32, Boston: Unwin Hyman, 1988.
Handle: RePEc:nbr:nberwo:2056
Note: LS
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  1. Meese, Richard, 1980. "Dynamic factor demand schedules for labor and capital under rational expectations," Journal of Econometrics, Elsevier, vol. 14(1), pages 141-158, September.
  2. Crawford, Robert G., 1979. "Expectations and labor market adjustments," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 207-232.
  3. Jacob Mincer & Boyan Jovanovic, 1979. "Labor Mobility and Wages," NBER Working Papers 0357, National Bureau of Economic Research, Inc.
  4. Daniel S. Hamermesh, 1984. "The Costs of Worker Displacement," NBER Working Papers 1495, National Bureau of Economic Research, Inc.
  5. Rossana, Robert J, 1985. "Buffer Stocks and Labor Demand: Further Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 16-26, February.
  6. Matthew D. Shapiro, 1986. "The Dynamic Demand for Capital and Labor," NBER Working Papers 1899, National Bureau of Economic Research, Inc.
  7. Medoff, James L & Abraham, Katharine G, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 703-36, December.
  8. Nickell, S J, 1978. "Fixed Costs, Employment and Labour Demand over the Cycle," Economica, London School of Economics and Political Science, vol. 45(180), pages 329-45, November.
  9. Olivia S. Mitchell, 1982. "Fringe Benefits and Labor Mobility," Journal of Human Resources, University of Wisconsin Press, vol. 17(2), pages 286-298.
  10. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-20, September.
  11. Topel, Robert H, 1982. "Inventories, Layoffs, and the Short-Run Demand for Labor," American Economic Review, American Economic Association, vol. 72(4), pages 769-87, September.
  12. Rothschild, Michael, 1971. "On the Cost of Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 605-22, November.
  13. 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.
  14. John T. Addison & Pedro Portugal, 1987. "The effect of advance notification of plant closings on unemployment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 41(1), pages 3-16, October.
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