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Linear Adjustment Costs and Seasonal Labour Demand: Unemployment Insurance Experience Rating in Retail Trade

Author

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  • Patricia M. Anderson

    (Dartmouth College)

Abstract

Standard models of dynamic labor demand rely on the presence of adjustment costs to explain the observed smoothness in employment patterns, although the costs are often difficult to quantify. The experience rating feature of the U.S. Unemployment Insurance (UI) system provides a measurable linear cost of adjustment. Using a unique data set with administrative data on over 8,000 firms, I estimate the effect of a UI-induced linear adjustment cost on seasonal labor demand in retail trade. I find strong support for the large role of adjustment costs in reducing the employment response of firms to seasonal fluctuations in demand.

Suggested Citation

  • Patricia M. Anderson, 1992. "Linear Adjustment Costs and Seasonal Labour Demand: Unemployment Insurance Experience Rating in Retail Trade," Working Papers 673, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:293
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    Citations

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    Cited by:

    1. Card, David & Levine, Phillip B., 1994. "Unemployment insurance taxes and the cyclical and seasonal properties of unemployment," Journal of Public Economics, Elsevier, vol. 53(1), pages 1-29, January.

    More about this item

    Keywords

    employment variability; unemployment; insurance experience rateability; labor demand; adjustment costs;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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