The Demand for Workers and Hours and the Effects of Job Security Policies: Theory and Evidence

Working Paper: NBER ID: w2056

Authors: Daniel S. Hamermesh

Abstract: There has been a wide variety of research on worker-hours substitution and the effects of various costs on the speed and extent to which labor demand adjusts. Much of this literature, though, confuses various types of fixed costs and fails to provide a guide for identifying how changes in labor-cost structures affect static relative demands for workers and hours and the paths by which they adjust. This study presents a typology of labor cost market policies in OECD countries are pigeonholed by their effects on labor costs are view of the evidence indicates clearly that there is some slight substitution between workers and hours along a constant effective-labor isoquant. The evidence is clear that employers adjust the demand for hours more rapidly than that for workers and that both adjust fairly rapidly. It also shows that a major effect of cost-increasing policies designed to induce substitution from hours to workers is a reduction in the total amount of worker-hours demanded. Original analysis demonstrates that lags in the adjustment of employment in response to changes in demand lengthened in most OECD countries during the 1970s.

Keywords: labor demand; job security; employment hours; labor costs; OECD policies

JEL Codes: J23; J38

Causal Claims

Cause	Effect
increase in fixed costs per worker (v) (J39)	reduction in total worker-hours demanded (J29)
increase in fixed costs per worker (v) (J39)	decrease in relative demand for workers (J29)
increase in fixed costs per worker (v) (J39)	employers substitute hours for employment (J22)
increase in fixed costs per worker (v) (J39)	employers adjust demand for hours more rapidly than for workers (J29)
policies designed to increase labor costs (J38)	reduction in employment-hours ratio (J22)
policies designed to increase labor costs (J38)	more pronounced effect among low-skilled workers (F66)