Autore
Rota, Paola

Titolo
Dynamic labour demand with lumpy and kinked adjustment costs
Periodico
International Center for Economics Research, Torino. ICER - Working papers series
Anno: 1999 - Fascicolo: 3 - Pagina iniziale: 1 - Pagina finale: 33

We analyze the dynamics of firms employment decisions which underlie lumpy and kinked adjustment costs. We consider a dynamic structural model in which, in each period, firms face a choice of whether to vary the labour input or to postpone the adjustment to the future. By exploiting the first order condition for optimality, we derive a semi-reduced form in which firms' intertemporal employment are defined by a standard static marginal productivity condition augmented by a forward-looking term. In this way we obtain a marginal productivity equilibrium relation which takes into account the future alternatives of adjustment or non-adjustment that firms face as the result of the presence of fixed and linear adjustment costs. Our procedure takes explicitly into account the censoring generated by the discrete choice firms face in the presence of non-strictly convex adjustment costs. We first estimate the conditional probability of varying the labour input and, in a second stage, we condition on firms which adjust, and exploit orthogonality conditions for the estimation of the structural parameters.



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