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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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Turnover and the Dynamics of Labor Demand

Turnover and the Dynamics of Labor Demand

Chapter:
(p.95) 5 Turnover and the Dynamics of Labor Demand
Source:
Demand for Labor
Author(s):

Daniel S. Hamermesh

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198791379.003.0005

The theory of the dynamics of labor demand is based either on the costs of adjusting the level of employment or on the costs of hiring or firing (of gross changes in employment). We write down a generalized cost of adjustment function that includes both types of cost and allows for asymmetries in those costs. We derive the firm’s rational-expectations profit - maximizing path of employment demand and the Euler equation whose parameters we estimate. Identifying the two types of costs requires complete data on turnover, which were available for the U.S. through 1981. We use these data for manufacturing to demonstrate that both types of adjustment cost figure in the representative firm’s profit-maximizing decisions about employment, and that both types of cost are asymmetric (leading here to quicker increases than decreases in employment).

Keywords:   Labor turnover, adjustment costs, nonlinear adjustment, employment dynamics, asymmetric adjustment

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