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Labour Responses, Regulation and Business Churn

Aloi, Marta, Dixon, Huw, Savagar, Anthony (2021) Labour Responses, Regulation and Business Churn. Journal of Money, Credit and Banking, 53 (1). pp. 119-156. ISSN 0022-2879. (doi:10.1111/jmcb.12694) (KAR id:77308)


We develop a model of sluggish firm entry to explain short-run labor responses to technology shocks. We show that the labor response to technology and its persistence depend on the degree of returns to labor and the rate of firm entry. Existing empirical results support our theory based on short-run labor responses across US industries. We derive closed-form transition paths that show the result occurs because labor adjusts instantaneously whilst firms are sluggish, and closed-form eigenvalues show that stricter entry regulation results in slower convergence to steady state. Finally we show that our theoretical results hold in a quantitative model with capital accumulation and interest rate dynamics.

Item Type: Article
DOI/Identification number: 10.1111/jmcb.12694
Uncontrolled keywords: Deregulation, Dynamic entry, Endogenous entry costs, short-run labor responses
Subjects: H Social Sciences > HB Economic Theory
Divisions: Divisions > Division of Human and Social Sciences > School of Economics
Depositing User: Anthony Savagar
Date Deposited: 10 Oct 2019 15:03 UTC
Last Modified: 14 Jul 2022 23:00 UTC
Resource URI: (The current URI for this page, for reference purposes)

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