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Labor Responses, Regulation and Business Churn in a Small Open Economy

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  • Marta Aloi
  • Huw Dixon
  • Anthony Savagar

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Abstract

We analyze labor responses to technology shocks when firm entry is sluggish due to endogenous sunk costs. We provide closed-form solutions for transition dynamics that show, when firm entry is slow to respond, labor will increase (decrease) relative to its long-run response if returns to labor input at the firm level are increasing (decreasing). Under stricter regulation (slower business churn), such short-run deviations of labor persist for longer. There is also potential for short-run productivity effects to differ from the long run.

Suggested Citation

  • Marta Aloi & Huw Dixon & Anthony Savagar, 2018. "Labor Responses, Regulation and Business Churn in a Small Open Economy," Studies in Economics 1804, School of Economics, University of Kent.
  • Handle: RePEc:ukc:ukcedp:1804
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    References listed on IDEAS

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