The cost of labor adjustment: Inferences from the gap

Russell Cooper, Jonathan L. Willis

Research output: Contribution to journalArticlepeer-review

30 Scopus citations


This paper studies the aggregate implications of micro-level labor adjustment costs. Caballero and Engel [Caballero, R., Engel, E., 1993. Microeconomic adjustment hazards and aggregate dynamics. Quarterly Journal of Economics 108, 313-358] find a dependence of aggregate employment growth on the cross sectional distribution of "employment gaps." This paper uses those results as moments in an indirect inference procedure to infer the underlying labor adjustment costs. We specify a dynamic optimization problem at the plant level, allowing for both convex and non-convex adjustment costs. Consistent with evidence at the micro level, our findings indicate that non-convex adjustment costs are necessary to match these aggregate moments.

Original languageEnglish (US)
Pages (from-to)632-647
Number of pages16
JournalReview of Economic Dynamics
Issue number4
StatePublished - Oct 2009

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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