DP690 A Model of Labour Demand with Linear Adjustment Costs

Author(s):	Samuel Bentolila, Gilles Saint-Paul
Publication Date:	August 1992
Keyword(s):	Firing Costs, Labour Demand, Unemployment
JEL(s):	J23
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=690

This paper formulates a discrete-time model to study the effects of firing costs on labour demand by a firm facing linear adjustment costs under serially independent productivity shocks. We show that a rise in firing costs reduces the firm's marginal propensities to hire and fire, and may increase or decrease its average steady-state labour demand.