AGGREGATE EMPLOYMENT DYNAMICS - BUILDING FROM MICROECONOMIC EVIDENCE

This paper studies quarterly employment flows of approximately 10,000 U.S. manufacturing establishments. We use establishments' hours-week t o construct measures of the deviation between desired and actual emplo yment and use these as the establishments' main state variables. Our m ain findings are: (i) microeconomic adjustment functions are nonlinear , with plants adjusting disproportionately to large shortages; (ii) ad justments are often either large or nil, suggesting the presence of no nconvexities in the adjustment cost technologies: (iii) the bulk of av erage employment fluctuations is accounted for by aggregate, rather th an reallocation, shocks; and (iv) microeconomic nonlinearities amplify the impact of large aggregate shocks.