Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7388163 | Review of Economic Dynamics | 2018 | 46 Pages |
Abstract
Both aggregate and micro-level data show that the firm-paid quasi-fixed cost of an employee's benefits fluctuates with labor market conditions. It declines when employment growth deteriorates and increases when employment growth improves, a benefit-expenditure-level-to-employment-growth relationship. This paper develops an RBC model to study the impact of this cyclical quasi-fixed labor cost on firms' employment decisions. I find that the cost increases employment volatility and delays employment adjustments when productivity shocks are small. The model reflects the sluggish employment recoveries of the post-1990 period, but not before that. It also generates data-matching volatility for employment and other business cycle variables.
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Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Grace W. Gu,