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1996 Documento de Trabajo #6

Aggregate Employment Dynamics: Building from Microeconomic Evidence

This paper studies quarterly employment flows of approximately 10,000 large U.S. manufacturing establishments. We use establishments` hours-week to construct measures of the deviation between desired and actual employment and then we use these as the state variables upon which units decide their employment adjustments. The main findings are: (i) Microeconomic adjustments functions are non-linear, with firms adjusting disproportionately to large shortages. (ii) Adjustments are often either large or nil, suggesting the presence of nonconvexities in the adjustment cost technologies. (iii) The bulk of average employment fluctuations is accounted for by aggregate rather than reallocation shocks. (iv) Microeconomic nonlinearities amplify the aggregate impact aggregate shocks.

Ricardo J. Caballero
Eduardo Engel
John Haltiwanger

Publicado en: American Economic Review, Vol. 87, pp. 115-137, Marzo 1997.