Labor Responses, Regulation and Business Churn

59 Pages Posted: 21 Feb 2019

See all articles by Marta Aloi

Marta Aloi

University of Nottingham - School of Economics

Huw David Dixon

Cardiff University - Cardiff Business School

Anthony Savagar

University of Kent - Department of Economics

Date Written: 2018

Abstract

We develop a model of sluggish firm entry to explain short-run labor responses to technology shocks. We show that the labor response to technology and its persistence depend on the degree of returns to labor and the rate of firm entry. Existing empirical results support our theory based on short-run labor responses across US industries. We derive closed-form transition paths that show the result occurs because labor adjusts instantaneously whilst firms are sluggish, and closed-form eigenvalues show that stricter entry regulation results in slower convergence to steady state.

Keywords: deregulation, dynamic entry, endogenous entry costs

JEL Classification: D250, E200, L110, O330

Suggested Citation

Aloi, Marta and Dixon, Huw David and Savagar, Anthony, Labor Responses, Regulation and Business Churn (2018). CESifo Working Paper No. 7275, Available at SSRN: https://ssrn.com/abstract=3338600

Marta Aloi (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 115 951 14743 (Phone)

Huw David Dixon

Cardiff University - Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

Anthony Savagar

University of Kent - Department of Economics ( email )

Keynes College
Kent, CT2 7NP
United Kingdom

HOME PAGE: http://https://www.kent.ac.uk/economics/staff/profiles/anthony-savagar.html

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