Turnover and the Dynamics of Labor Demand

20 Pages Posted: 30 Aug 2000 Last revised: 29 Dec 2022

See all articles by Daniel S. Hamermesh

Daniel S. Hamermesh

University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Gerard A. Pfann

Maastricht University; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Date Written: October 1992

Abstract

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).

Suggested Citation

Hamermesh, Daniel S. and Pfann, Gerard Antonie, Turnover and the Dynamics of Labor Demand (October 1992). NBER Working Paper No. w4204, Available at SSRN: https://ssrn.com/abstract=227979

Daniel S. Hamermesh (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Gerard Antonie Pfann

Maastricht University ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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