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NBER WORKING PAPER SERIES DYNAMICS OF LABOR DEMAND: EVIDENCE FROM PLANT-LEVEL OBSERVATIONS AND AGGREGATE IMPLICATIONS Russell W. Cooper John C. Haltiwanger Jonathan Willis Working Paper 10297 http://www.nber.org/papers/w10297 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 February 2004 We are grateful to participants at the 2003 Madrid Conference on Lumpy Investment, Durable Purchases and Technical Change, the 2003 Society of Economic Dynamics conference and the 2003 ITAM-University of Texas Conference. The authors thank the NSF for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research. ©2004 by Russell W. Cooper, John C. Haltiwanger, and Jonathan Willis. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.

NBER WORKING PAPER SERIES DYNAMICS OF LABOR DEMAND ... · BRB, 2.102A University of Texas Austin, Texas 78712 and NBER [email protected] John C. Haltiwanger Department of Economics

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Page 1: NBER WORKING PAPER SERIES DYNAMICS OF LABOR DEMAND ... · BRB, 2.102A University of Texas Austin, Texas 78712 and NBER cooper@eco.utexas.edu John C. Haltiwanger Department of Economics

NBER WORKING PAPER SERIES

DYNAMICS OF LABOR DEMAND: EVIDENCE FROM PLANT-LEVELOBSERVATIONS AND AGGREGATE IMPLICATIONS

Russell W. CooperJohn C. Haltiwanger

Jonathan Willis

Working Paper 10297http://www.nber.org/papers/w10297

NATIONAL BUREAU OF ECONOMIC RESEARCH1050 Massachusetts Avenue

Cambridge, MA 02138February 2004

We are grateful to participants at the 2003 Madrid Conference on Lumpy Investment, Durable Purchases andTechnical Change, the 2003 Society of Economic Dynamics conference and the 2003 ITAM-University ofTexas Conference. The authors thank the NSF for financial support. The views expressed herein are thoseof the authors and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City. Theviews expressed herein are those of the authors and not necessarily those of the National Bureau of EconomicResearch.

©2004 by Russell W. Cooper, John C. Haltiwanger, and Jonathan Willis. All rights reserved. Short sectionsof text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit,including © notice, is given to the source.

Page 2: NBER WORKING PAPER SERIES DYNAMICS OF LABOR DEMAND ... · BRB, 2.102A University of Texas Austin, Texas 78712 and NBER cooper@eco.utexas.edu John C. Haltiwanger Department of Economics

Dynamics of Labor Demand: Evidence from Plant-level Observations and AggregateImplications Russell W. Cooper, John C. Haltiwanger, and Jonathan WillisNBER Working Paper No. 10297February 2004JEL No. E240, J230, C330

ABSTRACT

This paper studies the dynamics of labor demand at the plant and aggregate levels. The correlation

of hours and employment growth is negative at the plant level and positive in aggregate time series.

Further, hours and employment growth are about equally volatile at the plant level while hours

growth is much less volatile than employment growth in the aggregate data. Given these differences,

we specify and estimate the parameters of a plant-level dynamic optimization problem using

simulated method of moments to match plant-level observations. Our findings indicate that non-

convex adjustment costs are critical for explaining plant-level moments on hours and employment.

Aggregation generates time series implications which are broadly consistent with observation.

Further, we find that a model with quadratic adjustment costs alone can also broadly match the

aggregate facts.

Russell W. CooperDepartment of EconomicsBRB, 2.102AUniversity of TexasAustin, Texas 78712and [email protected]

John C. HaltiwangerDepartment of EconomicsUniversity of MarylandCollege Park, MD 20742and [email protected]

Jonathan WillisResearch DepartmentFederal Reserve Bank of Kansas [email protected]

Page 3: NBER WORKING PAPER SERIES DYNAMICS OF LABOR DEMAND ... · BRB, 2.102A University of Texas Austin, Texas 78712 and NBER cooper@eco.utexas.edu John C. Haltiwanger Department of Economics

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Page 4: NBER WORKING PAPER SERIES DYNAMICS OF LABOR DEMAND ... · BRB, 2.102A University of Texas Austin, Texas 78712 and NBER cooper@eco.utexas.edu John C. Haltiwanger Department of Economics

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Page 9: NBER WORKING PAPER SERIES DYNAMICS OF LABOR DEMAND ... · BRB, 2.102A University of Texas Austin, Texas 78712 and NBER cooper@eco.utexas.edu John C. Haltiwanger Department of Economics

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Page 28: NBER WORKING PAPER SERIES DYNAMICS OF LABOR DEMAND ... · BRB, 2.102A University of Texas Austin, Texas 78712 and NBER cooper@eco.utexas.edu John C. Haltiwanger Department of Economics

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