This study derives and estimates a dynamic model of factor demand
that includes both fixed and quadratic variable costs of adjustment.
using quarterly data on the employment of mechanics at seven airlines,
it finds that both types of adjustment costs characterize the dynamic
constraints facing employers. Using monthly data covering production-worker
employment in seven manufacturing plants, it shows that only
fixed costs are important. The apparent diversity of the underlying
costs of adjustment means it is difficult to draw useful inferences from
macroeconometric estimates. It suggests the importance of examining
broader arrays of microeconomic time series describing labor demand.
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