Pm. Anderson, LINEAR ADJUSTMENT COSTS AND SEASONAL LABOR DEMAND - EVIDENCE FROM RETAIL TRADE FIRMS, The Quarterly journal of economics, 108(4), 1993, pp. 1015-1042
Standard models of dynamic labor demand rely on the presence of adjust
ment costs to explain the observed smoothness in employment patterns,
although the costs are often difficult to quantify. The experience rat
ing feature of the U. S. Unemployment Insurance (UI) system provides a
measurable linear cost of adjustment. Using a unique data set with ad
ministrative data on over 8000 firms, I estimate the effect of a UI-in
duced linear adjustment cost on seasonal labor demand in retail trade.
I find strong support for the large role of adjustment costs in reduc
ing the employment response of firms to seasonal fluctuations in deman
d.