Linear Adjustment Costs and Seasonal Labour Demand: Unemployment Insurance Experience Rating in Retail Trade

Patricia Anderson

No 673, Working Papers from Princeton University, Department of Economics, Industrial Relations Section.

Abstract: Standard models of dynamic labor demand rely on the presence of adjustment costs to explain the observed smoothness in employment patterns, although the costs are often difficult to quantify. The experience rating feature of the U.S. Unemployment Insurance (UI) system provides a measurable linear cost of adjustment. Using a unique data set with administrative data on over 8,000 firms, I estimate the effect of a UI-induced linear adjustment cost on seasonal labor demand in retail trade. I find strong support for the large role of adjustment costs in reducing the employment response of firms to seasonal fluctuations in demand.

Keywords: employment variability; unemployment; insurance experience rateability; labor demand; adjustment costs (search for similar items in EconPapers)
JEL-codes: C3 (search for similar items in EconPapers)
Date: 1992-01
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Citations: View citations in EconPapers (1)

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