Labor Responses, Regulation, and Business Churn

Marta Aloi, Huw Dixon and Anthony Savagar

Journal of Money, Credit and Banking, 2021, vol. 53, issue 1, 119-156

Abstract: We develop a model of sluggish firm entry to explain short‐run labor responses to technology shocks. We show that the labor response to technology and its persistence depend on the degree of returns to labor and the rate of firm entry. Existing empirical results support our theory based on short‐run labor responses across U.S. industries. We derive closed‐form transition paths that show the result occurs because labor adjusts instantaneously while firms are sluggish, and closed‐form eigenvalues show that stricter entry regulation results in slower convergence to steady state. Finally, we show that our theoretical results hold in a quantitative model with capital accumulation and interest rate dynamics.

Date: 2021
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Citations: View citations in EconPapers (1)

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https://doi.org/10.1111/jmcb.12694

Related works:
Working Paper: Labor Responses, Regulation and Business Churn (2018)
Working Paper: Labour responses, regulation and business churn in a small open economy (2018)
Working Paper: Labor Responses, Regulation and Business Churn in a Small Open Economy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:53:y:2021:i:1:p:119-156

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