Turnover and the Dynamics of Labour Demand.

Using a generalized asymmetric adjustment function including both costs of changing employment (net changes) and costs of hiring or firing (gross changes), the authors derive the profit-maximizing path of employment demand and the Euler equation whose parameters they estimate. Identifying the two types of costs requires complete data on turnover, which were available for U.S. manufacturing through 1981 and which demonstrate that both types of costs are needed to track aggregate employment fluctuations if one assumes that costs are symmetric. Allowing for asymmetry, the apparent importance of variations in the turnover rate disappears. Copyright 1996 by The London School of Economics and Political Science.