Labor Responses, Regulation and Business Churn in a Small Open Economy
Marta Aloi (),
Huw Dixon and
Studies in Economics from School of Economics, University of Kent
We analyze labor 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, labor will increase (decrease) relative to its long-run response if returns to labor input at the firm level are increasing (decreasing). Under stricter regulation (slower business churn), such short-run deviations of labor persist for longer. There is also potential for short-run productivity effects to differ from the long run.
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Working Paper: Labour responses, regulation and business churn in a small open economy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ukc:ukcedp:1804
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