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A Genral Model of Dynamic Labor Demand

  • Daniel S. Hamermesh

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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File URL: http://www.nber.org/papers/w3356.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3356.

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Date of creation: May 1990
Date of revision:
Publication status: published as Review of Economics and Statistics, Vol.74, No. 4, pp.733-737,(Nov.1992).
Handle: RePEc:nbr:nberwo:3356
Note: LS
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Web page: http://www.nber.org
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  1. Davidson, Russell & Harris, Richard, 1981. "Non-Convexities in Continuous-Time Investment Theory," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 235-53, April.
  2. 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.
  3. Daniel S. Hamermesh, 1990. "Aggregate Employment Dynamcis and Lumpy Adjustment Costs," NBER Working Papers 3229, National Bureau of Economic Research, Inc.
  4. Rothschild, Michael, 1971. "On the Cost of Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 605-22, November.
  5. David Card, 1986. "Efficient Contracts with Costly Adjustment: Short-RUn Employment Determination for Airline Mechanics," NBER Working Papers 1931, National Bureau of Economic Research, Inc.
  6. Nickell, Stephen, 1984. "An Investigation of the Determinants of Manufacturing Employment in the United Kingdom," Review of Economic Studies, Wiley Blackwell, vol. 51(4), pages 529-57, October.
  7. Trivedi, Pravin K, 1985. "Distributed Lags, Aggregation, and Compounding: Some Econometric Implications," Review of Economic Studies, Wiley Blackwell, vol. 52(1), pages 19-35, January.
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