Factor adjustment spikes and interrelation: an empirical investigation

Letterie, Wilko; Pfann, Gerard A.; Polder, J

doi:10.1016/j.econlet.2004.03.017

Cited by 30 publications

(21 citation statements)

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“…Spikes of labor adjustments coordinate large adjustments in capital, so that volatility of investment is also high in this model. Letterie, Pfann, and Polder (2004) found that both labor and capital adjustments are lumpy in the data of dutch manufacturing sector, and they are interrelated with respect to the timing of adjustment.…”

Section: Numerical Resultsmentioning

confidence: 99%

“…Earlier evidence has been presented by Hamermesh (1989) and Caballero, Engel, and Haltiwanger (1997). Recently Letterie, Pfann, and Polder (2004) investigate the dynamic interrelation between factor demand with plant-level data for the Dutch manufacturing sector. They find that both adjustments of capital and labor are lumpy, and they are coordinated with each other in time.…”

Section: Introductionmentioning

confidence: 99%

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Lumpy Labor Adjustment as a Propagation Mechanism of Business Cycles

Yao

2008

SSRN Journal

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This paper aims to study the quantitative significance of lumpy labor adjustment as a propagation mechanism for business cycles. In the baseline model, I introduce lumpy job turnover in the spirit of Taylor (1980) and Calvo (1983) in a DSGE framework and find that it performs as same as the quadratic-adjustment-cost model at the aggregate level, but different at firm's level. In particular, It can capture lumpy labor adjustment at plant's level through the 'front-loading effect'. Then I implement the Weibull distribution in the same framework to incorporate the increasing hazards of the labor adjustment process, which is supported by the evidence from micro data. This extension represents a substantial improvement over benchmark models. It can replicate high volatility of employment, low volatile labor productivity and persistent dynamics in output. Based on these results, I conclude that intratemporal substitution between the two production factors and the aggregation mechanism play an important role in the propagation mechanism.JEL Classification: E32; E24 ; E22

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Section: Numerical Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Lumpy Labor Adjustment as a Propagation Mechanism of Business Cycles

Yao

2008

SSRN Journal

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“…Letterie et al (2004) andVarejão and Portugal (2007) also noted that firms tend to adjust employment infrequently.…”

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confidence: 98%

An artificial Wicksell–Keynes economy integrating short-run business cycle and long-term cumulative trend

Takahashi

Okada

2020

J Econ Interact Coord

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Economists have investigated how price-wage rigidity influences macroeconomic stability. A widely accepted view asserts that increased rigidity destabilizes an economy by requiring a larger quantity adjustment. In contrast, the Old Keynesian view regards nominal rigidity as a stabilizing factor, because it reduces fluctuations in income and thus aggregate demand. To examine whether price-wage stickiness is stabilizing or destabilizing, we build an agent-based Wicksell-Keynes macroeconomic model, which is completely closed and absolutely free from any external shocks, including policy interventions. In the model, firms setting prices and wages make both employment and investment decisions under demand constraints, while a fractional-reserve banking sector sets the interest rate and provides the firms with investment funds. As investment involves a gestation period, it is conducive to overproduction, thereby causing alternate seller's and buyer's markets. In the baseline simulation, a stable economy emerges with short-run business cycles and long-run fluctuations. One unique feature of the economy is its remarkable resilience: When afflicted by persistent deflation, it often manages to reverse the deflationary spiral and get back on a growth track, ultimately achieving full or nearly full employment. The virtual experiments demonstrate that prices and wages must both be moderately rigid to ensure long-run stability. The key stabilizing mechanism is a recurring demand-sufficient economy, in which firms are allowed to increase employment while simultaneously cutting real wages.

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“…This lumpiness may reflect the existence of nonconvexities in the adjustment costs of the input factors. Recent empirical studies based on micro data by Sakellaris (2004), Letterie et al (2004), and Nilsen et al (2009) have indeed revealed that in the context of lumpy adjustment the dynamics of labour and capital demand are interrelated. In particular, these papers have shown that at the micro level investment and labour spikes tend to occur simultaneously.…”

Section: Introductionmentioning

confidence: 99%

Sequentiality Versus Simultaneity: Interrelated Factor Demand

et al. 2010

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Abstract:A structural model is developed and estimated by a maximum likelihood routine to investigate interrelated factor demand subject to nonconvex adjustment costs. The dataset concerns Norwegian plants operating in manufacturing industries and it covers the period 1993-2005. The estimates indicate that it is advantageous to adjust the stock of labour and capital simultaneously. The cost advantage of simultaneous changes is small for capital but is large for labour. The empirical results suggest that when estimating separate factor demand models the bias of parameter estimates is most severe in case of labour demand.JEL Codes: D92, E22, E24, J23, L60

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Factor adjustment spikes and interrelation: an empirical investigation

Abstract: We take a descriptive look at interrelated factor demand starting from the observation that adjustment of capital and labor is lumpy. We find that the adjustment dynamics of an input factor are affected by large adjustments in the other. D

Cited by 30 publications

References 10 publications

Lumpy Labor Adjustment as a Propagation Mechanism of Business Cycles

Lumpy Labor Adjustment as a Propagation Mechanism of Business Cycles

An artificial Wicksell–Keynes economy integrating short-run business cycle and long-term cumulative trend

Sequentiality Versus Simultaneity: Interrelated Factor Demand

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