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Optimal Employment in Frictional Business Cycles and Intertemporal Discontinuity of Demand Duals and Production

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  • Koji Yokota

Abstract

The present paper studies the optimal behavior of the firm facing labor friction characterized by convex hiring cost and sufficiently differentiated output good. The problem turns out to be a singular control problem. General paths are studied including socially inefficient ones caused by the rise of demand constraint. Analysis of optimal firing behavior becomes possible with this setup. It turns out that the singularity brings costate jumps at junction points to the firing phase, which result in the discontinuity of production. Those jumps have been known to occur in problems with inequality constraints that contain only state variables. The present model shows that they can occur with inequality constraints with control variables when singularity is present.

Suggested Citation

  • Koji Yokota, 2018. "Optimal Employment in Frictional Business Cycles and Intertemporal Discontinuity of Demand Duals and Production," Discussion Papers 42, Meisei University, School of Economics, revised 02 Feb 2019.
    • Handle: RePEc:mei:wpaper:42
    as

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    References listed on IDEAS

    as
    1. Beaudry, Paul & Portier, Franck, 2004. "An exploration into Pigou's theory of cycles," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1183-1216, September.
    2. Blatter, Marc & Muehlemann, Samuel & Schenker, Samuel, 2012. "The costs of hiring skilled workers," European Economic Review, Elsevier, vol. 56(1), pages 20-35.
    3. Francis Kramarz & Marie-Laure Michaud, 2002. "The Shape of Hiring and Separation Costs," Working Papers 2002-38, Center for Research in Economics and Statistics.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    labor friction; business cycles; effective demand; optimal firing; labor hoarding; singular control;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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