Labor as a Quasi-Fixed Factor

Abstract

T HE cyclical behavior of labor markets reveals a number of puzzling features for which there are no truly satisfying explanations. Included among these are (1) occupational differences in the stability of employment and earnings, (2) the uneven incidence of unemployment, (3) the persistence of differential labor turnover rates, and (4) discriminatory hiring and firing policies. I believe that the major impediment to rational explanations for these phenomena lies in the classical treatment of labor as a purely variable factor. In this paper I propose a short-run theory of employment which rests on the premise that labor is a quasi-fixed factor. The fixed employment costs arise from investments by firms in hiring and training activities. The theory of labor as a quasi-fixed factor is developed in Part I. In Part II, the implications of this theory are subjected to various empirical tests. Finally, Part III turns to an examination of alternative theories and an extension of my theory to a theory of occupational wage differentials. The concept of labor as a quasi-fixed factor is, in my opinion, the relevant one for a short-run theory of employment. Its implications are amenable to empirical verification and are, in the main,