The economics of labor adjustment: mind the gap

Russell Cooper and Jonathan Willis

No RWP 01-06, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: We study the inferences about labor adjustment costs obtained by the \"gap methodology\" of Caballero and Engel [1993] and Caballero, Engel and Haltiwanger [1997]. In that approach, the policy function of a manufacturing plant is assumed to depend on the gap between a target and the current level of employment. Using time series observations, these studies reject the quadratic cost of adjustment model and find that aggregate employment dynamics depend on the cross sectional distribution of employment gaps. We argue that these conclusions may not be justified. Instead these findings may reflect difficulties measuring the gap. Thus it appears that the gap methodology as currently employed, may be unable to: (i) identify the costs of labor adjustment and (ii) assess the aggregate implications of labor adjustment costs.

Keywords: Employment; (Economic; theory) (search for similar items in EconPapers)
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://www.kansascityfed.org/documents/622/pdf-RWP01-06.pdf (application/pdf)

Related works:
Working Paper: The economics of labor adjustment: mind the gap (2003)
Working Paper: The economics of labor adjustment: mind the gap (2003)
Working Paper: The Economics of Labor Adjustment: Mind the Gap (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:rwp01-06

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Research Working Paper from Federal Reserve Bank of Kansas City Contact information at EDIRC.
Bibliographic data for series maintained by Zach Kastens ().