NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Labor Demand and the Source of Adjustment Costs

Daniel S. Hamermesh

NBER Working Paper No. 4394 (Also Reprint No. r1975)
Issued in July 1993
NBER Program(s):   LS

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.

download in pdf format
   (346 K)

download in djvu format
   (251 K)

email paper

This paper is available as PDF (346 K) or DjVu (251 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4394

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

Users who downloaded this paper also downloaded these:
Hamermesh w2572 Labor Demand and the Structure of Adjustment Costs
Hamermesh w1297 The Demand for Labor in the Long Run
Hamermesh and Pfann w4204 Turnover and the Dynamics of Labor Demand
Hamermesh w3356 A Genral Model of Dynamic Labor Demand
Hamermesh w3890 Labor Demand: What Do We Know? What Don't We Know?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us