An Empirical Study of Dynamic Labor Demand with Integrated Forcing Processes
Journal of Macroeconomics, Fall 1997, Vol. 19, No. 4, pp. 697-715.
Posted: 31 Mar 2013
Date Written: 1997
In this paper, we examine a version of the Sargent (1978) and Kennan (1979) labor demand model under the assumption that the forcing processes are nonstationary. We derive a simple model of dynamic labor demand and highlight the important econometric and time-series implications of the optimization problem. The empirical results are surprisingly favorable and consistent with the underlying dynamic theory. Specifically, we find estimates that imply adjustment costs are about fourfold more important than disequilibrium costs in determining the dynamic demand for labor.
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