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Labor Responses, Regulation and Business Churn in a Small Open Economy

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  • Marta Aloi
  • Huw Dixon
  • Anthony Savagar

Abstract

We analyze labor responses to technology shocks when firm entry is sluggish due to endogenous sunk costs. We provide closed-form solutions for transition dynamics that show, when firm entry is slow to respond, labor will increase (decrease) relative to its long-run response if returns to labor input at the firm level are increasing (decreasing). Under stricter regulation (slower business churn), such short-run deviations of labor persist for longer. There is also potential for short-run productivity effects to differ from the long run.

Suggested Citation

  • Marta Aloi & Huw Dixon & Anthony Savagar, 2018. "Labor Responses, Regulation and Business Churn in a Small Open Economy," Studies in Economics 1804, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:1804
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    2. Savagar, Anthony, 2021. "Measured productivity with endogenous markups and economic profits," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).

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    More about this item

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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