The cost of labor adjustment: inferences from the gap

Russell Cooper and Jonathan Willis

No RWP 02-11, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: We study labor adjustment costs. We specify a dynamic optimization problem at the plant-level, allowing for both convex and non-convex adjustment costs. We estimate the parameters of the adjustment process using an indirect inference procedure in which simulated moments are matched with data moments. For this study we use estimates of reduced form adjustment functions obtained by the \"gap methodology\" reported in Caballero and Engel (1993). Contrary to evidence at the micro level in support of non-convex adjustment costs, our preliminary findings indicate that piecewise quadratic adjustment costs are sufficient to match these aggregate moments.

Keywords: Labor market; Employment (Economic theory) (search for similar items in EconPapers)
Date: 2002
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The Cost of Labor Adjustment: Inferences from the Gap (2009)
Working Paper: The Cost of Labor Adjustment: Inferences from the Gap (2003)
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