TY  - JOUR
AU  - Cooper,Russell W.
AU  - Willis,Jonathan L.
TI  - The Economics of Labor Adjustment: Mind the Gap
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8527
PY  - 2001
Y2  - October 2001
UR  - http://www.nber.org/papers/w8527
L1  - http://www.nber.org/papers/w8527.pdf
N1  - Author contact info:
Russell Cooper
Department of Economics
European University Institute
via della Piazzola, 43
Firenze, 50133
ITALY
E-Mail: russellcoop@gmail.com
AB  - We study the inferences about labor adjustment costs obtained by the 'gap methodology' of Caballero and Engel [1993] and Caballero, Engel and Haltiwanger [1997]. In that approach, the policy function of a manufacturing plant is assumed to depend on the gap between a target and the current level of employment. Using time series observations, these studies reject the quadratic cost of adjustment model and find that aggregate employment dynamics depend on the cross sectional distribution of employment gaps. We argue that these conclusions may not be justified. Instead these findings may reflect difficulties measuring the gap. Thus it appears that the gap methodology, as currently employed, may be unable to: (i) identify the costs of labor adjustment and (ii) assess the aggregate implications of labor adjustment costs.
ER  -