Revisiting the Labor Hoarding Employment Demand Model : An Economic Order Quantity Model of Labor Hoarding

The labor studies literature has for many years accepted the labor hording theory. That theory derives from Journal of Financial Transformation seminal work by Oi (1962), Miller (1971), and Fair (1985). These studies argue that as a result of the absolute cost of hiring and training certain workers that even when the economy turns down, firms avoid layoffs as would be expected in a neoclassical framework. Consequently during such time periods companies develop a reserve supply of workers. If labor hording occurs the employment cycle should be less extreme than the production cycle. Since December 2007 when there were 115.5 million employed workers, the American economy lost 8.5 million jobs by January 2010, a 7.35% reduction in employment. During the same period, real GDP fell by 1.25%. This paper presents a different view of the demand for labor that is based on Baumol's (1952) cost minimization paradigm for determining the optimal level of inventories