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A Model of Labour Demand with Linear Adjustment Costs

Author

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  • Bentolila, Samuel
  • Saint-Paul, Gilles

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.

Suggested Citation

  • Bentolila, Samuel & Saint-Paul, Gilles, 1992. "A Model of Labour Demand with Linear Adjustment Costs," CEPR Discussion Papers 690, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:690
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    Keywords

    Firing Costs; Labour Demand; Unemployment;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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