Labour responses, regulation and business churn in a small open economy
Huw Dixon and
No 2018/06, Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcfc:18/06
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