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A Genral Model of Dynamic Labor Demand

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  • Daniel S. Hamermesh

Abstract

This study derives and estimates a dynamic model of factor demand that includes both fixed and quadratic variable costs of adjustment. Using quarterly data on the employment of mechanics at seven airlines, it finds that both types of adjustment costs characterize the dynamic constraints facing employers. Using monthly data covering production-worker employment in seven manufacturing plants, it shows that only fixed costs are important. The apparent diversity of the underlying costs of adjustment means it is difficult to draw useful inferences from macroeconometric estimates. It suggests the importance of examining broader arrays of microeconomic time series describing labor demand.

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  • Daniel S. Hamermesh, 1990. "A Genral Model of Dynamic Labor Demand," NBER Working Papers 3356, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3356
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    1. Michael Rothschild, 1971. "On the Cost of Adjustment," The Quarterly Journal of Economics, Oxford University Press, vol. 85(4), pages 605-622.
    2. Hamermesh, Daniel S., 1990. "Aggregate employment dynamics and lumpy adjustment costs," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 33(1), pages 93-129, January.
    3. Robert F. Engle & Ta-Chung Liu, 1972. "Effects of Aggregation Over Time on Dynamic Characteristics of an Econometric Model," NBER Chapters,in: Econometric Models of Cyclical Behavior, Volumes 1 and 2, pages 673-737 National Bureau of Economic Research, Inc.
    4. Card, David, 1986. "Efficient Contracts with Costly Adjustment: Short-run Employment Determination for Airline Mechanics," American Economic Review, American Economic Association, vol. 76(5), pages 1045-1071, December.
    5. P. K. Trivedi, 1985. "Distributed Lags, Aggregation and Compounding: Some Econometric Implications," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 19-35.
    6. Russell Davidson & Richard Harris, 1981. "Non-Convexities in Continuous Time Investment Theory," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 235-253.
    7. Stephen Nickell, 1984. "An Investigation of the Determinants of Manufacturing Employment in the United Kingdom," Review of Economic Studies, Oxford University Press, vol. 51(4), pages 529-557.
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