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Labour responses, regulation and business churn in a small open economy

Marta Aloi, Huw Dixon and Anthony Savagar

No 2018/06, Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM)

Abstract: We analyze labour responses to technology shocks when firm entry is sluggish due to endogenous sunk costs. We provide closed-form solutions for transition dynamics that show, when firm entry is slow to respond, labour will increase (decrease) relative to its long-run response if returns to labour input at the firm level are increasing (decreasing). Under stricter regulation (slower business churn), such short-run deviations of labour persist for longer. There is also potential for short-run productivity effects to differ from the long run.

Keywords: Deregulation; Endogenous entry; Aggregate labour productivity; Endogenous entry costs (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
Date: 2018
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