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Labor hoarding and inventories

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  • Yi Wen

Abstract

Labor hoarding is a widely believed empirical behavior of firms and a prominent explanation for procyclical labor productivity. Conventional wisdom attributes labor hoarding to labor adjustment costs. This paper argues that the conventional wisdom is inadequate for understanding labor hoarding because it ignores the role of inventories. Since idle labor can be used to produce inventories, why do firms hoard labor when inventory is an option? Using a dynamic rational expectations model of profit-maximizing firms facing demand uncertainty, this paper studies the dynamic interactions between labor hoarding and inventory accumulation. Closed-form decision rules for labor and inventory decisions are derived. The analysis shows that labor adjustment costs alone are far from sufficient for explaining labor hoarding. ; Earlier title: On the optimal volume of labor hoarding

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  • Yi Wen, 2005. "Labor hoarding and inventories," Working Papers 2005-040, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2005-040
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    References listed on IDEAS

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    Cited by:

    1. Christopher L. House & Jing Zhang, 2012. "Layoffs, Lemons and Temps," NBER Working Papers 17962, National Bureau of Economic Research, Inc.
    2. Michael J. Dueker, 2006. "Using cyclical regimes of output growth to predict jobless recoveries," Review, Federal Reserve Bank of St. Louis, vol. 88(Mar), pages 145-154.

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    Keywords

    Productivity; Labor supply;

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