The changing nature of hours and employment adjustment in US manufacturing : A contributing cause of the jobless recovery?

Has the character of adjustment of labor input in the US manufacturing sector been changing over the last few decades? This question is addressed with time‐series estimation using data through 2001. Impulse responses of employment and average weekly hours to a given shock in output demand are generated from multi‐equation vector autoregressions. The results reveal a marked change in the character of labor input adjustment as compared with the two decades prior to 1979, with some heterogeneity among 18 detailed industries. Adjustment of hours has risen somewhat while adjustment of employment has dropped considerably. This intensifying adjustment of hours vis‐à‐vis employment is consistent with hypotheses regarding employers' potential reactions to a skill‐upgrading of jobs under greater market pressures to restrain cost. US manufacturing employers appear to be increasingly adopting strategies of “lean staffing,” while “hoarding” and shedding work hours, in response to cyclical fluctuation in demand. This phenomenon may be a structural change contributing to a recent “jobless recovery” in the US.