The estimation of asymmetric adjustment costs for the number of workers and working hours – empirical evidence from Japanese industry data

Abstract

Using monthly data on Japanese industries, we estimate a model of dynamic labour demand that incorporates adjustment costs for hiring and firing workers, and for changing working hours.

Acknowledgements

We would like to thank Junya Masuda, Takeshi Nakatani, Kazuhiro Ohtani, Hisashi Tanizaki and the participants of Kansai Econometrics Workshop and the conferences of Japanese Economic Association for their useful comments. We acknowledge financial support from the 21 Century COE Research.

Notes

¹ Jaramillo et al. (1993), Pfann and Palm (1993) estimate Euler equations for the number of workers, which allows for asymmetry of adjustment costs between hiring and firing.

² See, for example, Ohtake (1988) and Muramatsu (1991). Abraham and Houseman (1989) investigate differences in adjusting the number of workers and working hours in the USA and Japan, but do not specify an employment-adjustment model.

³ In individual firm level, one side of gross change in the number of workers (working hours) is zero when the other side of gross change in the number of workers (working hours) is positive. But, in aggregate level, both gross changes could be positive. In economy, there are some firm which hire workers and also some firm which fire the workers.

⁴ Since the composite disturbance have serial correlation and heteroscedasticity, E _t (v _t ) not be zero though E _t [u _1t ] and E _t [u _2t ] are zero.