Estimating Labor Demand with Fixed Costs

24 Pages Posted: 28 Mar 2004

See all articles by Paola Rota

Paola Rota

University of Brescia - Department of Economics


We consider a dynamic model in which firms decide whether or not to vary labor in the presence of fixed costs. By exploiting the first-order condition for optimality, we derive a semireduced form in which firms' intertemporal employment is defined by a standard marginal productivity condition augmented by a forward-looking term. We obtain a marginal productivity equilibrium relation that takes into account the future alternatives of adjustment or nonadjustment that firms face. We use the structural parameter from this condition to estimate the fixed cost within a discrete decision process. Fixed costs are about 15 months' labor cost.

Suggested Citation

Rota, Paola, Estimating Labor Demand with Fixed Costs. Available at SSRN:

Paola Rota (Contact Author)

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122


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