Labor Demand and the Source of Adjustment Costs

Daniel Hamermesh

No 4394, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Most models of dynamic labor demand are written in terms of costs of adjusting employment (net adjustment costs). A few are based on the costs of hiring and firing (gross adjustment costs). This study derives several models containing both types of adjustment costs. A dynamic-programming model with quadratic adjustment costs generates an estimate of the lower bound on the fraction of adjustment costs that are gross costs. A model with lumpy costs of adjustment also estimates the relative sizes of the two types of costs. The models are estimated over two sets of short monthly time series obtained from private sources, one from a medium-size hospital, the other describing three plants operated by a small manufacturing firm, The quadratic-cost model is also estimated using data describing small industries. The estimates demonstrate that the importance of the two types of costs differs across establishments, though gross adjustment costs appear relatively larger. The results provide evidence on issues of asymmetry in business cycles and the role of human capital in generating externalities in economic growth.

JEL-codes: J23 (search for similar items in EconPapers)
Date: 1993-07
Note: LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (266)

Published as Economic Journal, vol. 105, no. 430, pp. 620-634, May 1995

Downloads: (external link)
http://www.nber.org/papers/w4394.pdf (application/pdf)

Related works:
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:nbr:nberwo:4394

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w4394

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().