How fast do banks adjust? : A dynamic model of labor-use with an application to Swedish banks

This paper deals with a dynamic adjustment process in which adjustment of a key variable input (labor) towards its desired level is modeled in a panel data context. The partial adjustment type model is extended to incorporate firm- and time-specific adjustment parameter. A flexible (translog) labor requirement function is used to represent the desired level of labor-use. It is specified as a function of a vector of outputs and other firm-specific variables. Labor-use inefficiency is defined as the ratio of actual to desired level of employment. Productivity growth is defined in terms of a shift in the labor requirement function. Swedish banking data is used as an application of the above model. -- Productivity ; Efficiency ; Convergence ; Labor-Use ; Panel Data ; Banking Industry