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Demand for LaborThe Neglected Side of the Market$
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Daniel S. Hamermesh and Corrado Giulietti

Print publication date: 2017

Print ISBN-13: 9780198791379

Published to Oxford Scholarship Online: March 2017

DOI: 10.1093/acprof:oso/9780198791379.001.0001

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Labor Demand and the Source of Adjustment Costs

Labor Demand and the Source of Adjustment Costs

(p.77) 4 Labor Demand and the Source of Adjustment Costs
Demand for Labor

Daniel S. Hamermesh

Oxford University Press

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.

Keywords:   Quits, hires, labor turnover, gross changes in employment, adjustment costs

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