DP690 | A Model of Labour Demand with Linear Adjustment Costs

Publication Date

27/08/1992

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Abstract

This paper formulates a discrete-time model to study the effects of firing costs on labour demand by a firm facing linear adjustment costs under serially independent productivity shocks. We show that a rise in firing costs reduces the firm's marginal propensities to hire and fire, and may increase or decrease its average steady-state labour demand.