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Unidimensionality, asymmetry and (S,s) rules in labour demand

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  • Paola Rota

Abstract

We analyse the conditions under which an (S,s) rule may be implemented in the case of labour demand. The (S,s) rule implies a specific ordering of choices: downward adjustment, nonadjustment and upward adjustment with the decision of inaction lying crucially in the middle. This requires an exact negative relation between the choice-specific error terms. The particular ordering of choices implied may be estimated by an ordered probit. We test the (S,s) rule nesting the ordered probit within a multinomial model with correlated error terms. The restriction to a univariate error distribution is rejected by the data.

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  • Paola Rota, 2007. "Unidimensionality, asymmetry and (S,s) rules in labour demand," Applied Economics, Taylor & Francis Journals, vol. 39(14), pages 1797-1815.
    • Handle: RePEc:taf:applec:v:39:y:2007:i:14:p:1797-1815
    DOI: 10.1080/00036840600690207
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    1. Abowd, John M. & Kramarz, Francis, 2003. "The costs of hiring and separations," Labour Economics, Elsevier, vol. 10(5), pages 499-530, October.
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