Organizational flexibility and employment dynamics at young and old plants

Jeffrey Campbell and Jonas Fisher

No WP-98-24, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: There are significant differences in the dynamics of employment over the business cycle between young and old manufacturing plants. Young plants are more sensitive to aggregate disturbances, and they respond to them along different margins. We interpret these differences as reflecting greater organizational flexibility at young plants due to the changing nature of a plant's environment as it ages. In the presence of aggregate uncertainty, differences between young and old plants' organizational flexibility allows the model to reproduce their distinct cyclical characteristics. Previous empirical studies show that small firms generally respond by more to aggregate shocks than do large firms. To the extent that small firms tend to operate young plants, our analysis suggests an alternative to conventional explanations of this evidence which appeal to imperfections in credit markets.

Keywords: Employment (Economic theory); Industries; Business cycles (search for similar items in EconPapers)
Date: 1998
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Working Paper: Organizational Flexibility and Employment Dynamics at Young and Old Plants (1998)
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