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Aggregate Employment Dynamics: Building from Microeconomic Evidence

Ricardo Caballero (), Eduardo Engel () and John Haltiwanger

American Economic Review, 1997, vol. 87, issue 1, 115-37

Abstract: This paper studies quarterly employment flows of approximately 10,000 U.S. manufacturing establishments. The authors use establishments' hours-week to construct measures of the deviation between desired and actual employment and use these as the establishments' main state variables. The main findings are: (1) microeconomic adjustment functions are nonlinear, with plants adjusting disproportionately to large shortages; (2) adjustments are often either large or nil, suggesting the presence of nonconvexities in the adjustment cost technologies; (3) the bulk of average employment fluctuations is accounted for by aggregate, rather than reallocation, shocks; and (4) microeconomic nonlinearities amplify the impact of large aggregate shocks. Copyright 1997 by American Economic Association.

Date: 1997
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Working Paper: Aggregate Employment Dynamics: Building from Microeconomic Evidence (1996)
Working Paper: Aggregate Employment Dynamics: Building From Microeconomic Evidence (1995) Downloads
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Handle: RePEc:aea:aecrev:v:87:y:1997:i:1:p:115-37