A model of labor demand with linear adjustment costs

Samuel Bentolila, Gilles Saint-Paul

Research output: Contribution to journalArticle

Abstract

This paper sets up a discrete-time model to study the effects of firing costs on labor demand by a firm facing linear adjustment costs under serially independent revenue shocks. It is shown that a rise in firing costs reduces the firm's willingness to hire and fire at the margin, and it reduces its average steady-state labor demand when these costs are low, but raises such demand when they are high.

Original languageEnglish (US)
Pages (from-to)303-326
Number of pages24
JournalLabour Economics
Volume1
Issue number3-4
DOIs
StatePublished - Sep 1994

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Keywords

  • Labor demand
  • Linear adjustment costs
  • Quit rates

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management

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