Labor Adjustment Research Articles

Adjusting to Rain Before It Falls

Unchecked climate change will cause precipitation volatility to increase around the world, leading to economic damages in the face of adjustment costs. We estimate these damages for construction—an economically important, climate exposed industry. Empirically, employment falls in response to forecasted rainfall and more so as the forecast horizon increases. This pattern allows for identification of labor adjustment costs via a multisector model of local labor markets calibrated to our estimates. When rainfall is anticipatable one month ahead, construction firms pay 10% of monthly profit to adjust. They pay less than 1% for rainfall anticipatable six months ahead. Without further adaptation or forecast improvements, increased rainfall volatility due to climate change is projected to lead to more costly adjustment. This paper was accepted by Elke Weber, Special Section of Management Science on Business and Climate Change. Supplemental Material: The data files and online appendices are available at https://doi.org/10.1287/mnsc.2023.4697 .

What Drives Firms’ Hiring Decisions? An Asset Pricing Perspective

Abstract We document that the aggregate hiring rate of publicly traded firms in the U.S. economy negatively predicts stock market returns and long-term cash flows, and positively predicts short-term cash flows. In addition, through a variance decomposition, we show that the time-series variation in the aggregate hiring rate is mainly driven by changes in discount rates and short-term expected cash flows, with no contribution from variation in long-term expected cash flows. We estimate a neoclassical dynamic model with labor market frictions and show that labor adjustment costs and time-varying risk are essential for the model to replicate the empirical patterns. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Firm and Labor Adjustments to FDI Liberalization1

Firm and Labor Adjustments to FDI Liberalization1

Firm and Labor Adjustments to FDI Liberalization

Firm and Labor Adjustments to FDI Liberalization

Intensive and Extensive Margins of Labor Adjustment with Non-regular Employment

Intensive and Extensive Margins of Labor Adjustment with Non-regular Employment

Employee Adjustment Costs and Asymmetric Cost Behavior

The managerial accounting literature suggests that adjustment costs lead to asymmetric cost behavior. Previous studies show that labor adjustment costs are the significant factor that drives asymmetric cost behavior. However, empirical proxies for labor adjustments costs have several limitations. This study suggests that CEO-to-worker pay disparity and the labor share as a new proxy for labor adjustment costs and substantiates that labor adjustment costs play a significant role in determining asymmetric cost behavior. Our proxies for adjustment costs represent the effectiveness of labor cost management and labor productivity. Prior studies suggest that large CEO-to-worker pay disparity indicates effective labor cost management. We find that lower CEO-to-worker pay disparity and higher labor income share are associated with greater cost stickiness. In additional tests, we find that the effect of adjustment costs is more significant for firms disclosing ESG grades and firms with higher ESG grades.

The rise of robots and the fall of cost stickiness: Evidence from Chinese manufacturers

AbstractIndustrial robots are increasingly used to perform tasks traditionally assigned to humans. Using a sample of Chinese manufacturers, we examine the impact of robot adoption on firm cost stickiness. We find that robot adoption is associated with less sticky costs. The negative impact of robot adoption on cost stickiness is particularly meaningful for state‐owned enterprises and firms with higher labour costs, and becomes significantly stronger after the enactment of China's Labour Contract Law, which significantly increases labour adjustment costs. These findings are consistent with the conjecture that the adoption of robots allows firms to reduce their overall labour adjustment costs.

Climate change scenarios in Zambia: modeling farmers’ adaptation

BackgroundAt the center of the Sustainable Development Goals (SDG) by the United Nations is climate change. Analyzing adaptation processes is fundamental to enhance resilience in the poorest parts of the world. The analysis harmonizes top-down and bottom-up approaches by integrating general circulation models into the method of mathematical optimization. The article designs a quantitative farm planning model for rural Zambia and focuses on optimal allocation of land, labor and cultivation methods. Our research takes advantage of recent survey data of 277 Zambian households from 2018. The model simulates a baseline scenario, 2 climate change scenarios and 7 variations of farmers’ land availability, labor capacity and off-farm work possibility. This results in 21 possible future outcomes and farmer adaptations.ResultsClimate change negatively affects future livelihoods at the study site. A dry climate decreases a farmer’s wealth by around 30% and a wet climate by nearly 20%. However, simulations show households are able to sustain their livelihood through adaptation processes at the farm level. Farmers’ variation in land size for crop cultivation indicates the strongest livelihood impacts in response to climate change. Increasing the land for cultivation is the best response, whereas a reduction of labor supply at the farm leads to households being more vulnerable to a changing climate. Off-farm employments reveal significant potential for climate change adaptation. An increase in work opportunities at a refugee camp nearby has a significant positive effect on rural livelihoods, without reducing the households’ farm production. The refugee camp, however, may imply future land competition.ConclusionsThe study concludes climate change has a serious impact on farm yields and requires land and labor adjustments to prevent losses in wealth. Altering the cropping mix, reallocating planting times or changing farming techniques are meaningful instruments to respond to climate change at the study site. Agricultural intensification can increase the productivity per hectare and the mix of on- and off-farm work indicates income diversification as possible response to climate change. The analysis is specified to a rural farm context in Zambia, but is applicable to similar settings in sub-Saharan Africa and useful for local policy implementations towards climate change adaptation.

Human resource heterogeneity, hold-up and firm cash holdings

PurposeThis paper aims to study the impact of human resource heterogeneity on firms’ cash-holding policies.Design/methodology/approachThe authors construct a proxy for human resource heterogeneity using the dissimilarity in employees’ skill structure between the firm and its peers in the same industry.FindingsThe authors report evidence that firms with heterogeneous human resources hold more cash than other firms. This effect is more pronounced in labor-intensive firms and firms more susceptible to hold-up by employees, i.e. firms located in regions with more labor disputes and firms surrounded by more external employment opportunities. In addition, the authors demonstrate that high cash holdings triggered by human resource heterogeneity reduce the scale and efficiency of firms’ capital investment.Originality/valueThis study highlights the role of human resource heterogeneity in determining firms’ cash policies. This paper adds to the understanding of labor adjustment costs within the firm and provides insights into firms’ cash-holding decisions.

Covid-19 pandemic, firms’ responses, and unemployment in the ASEAN-5

Numerous studies have explored the impact of the Covid-19 pandemic on firms’ financial performance, but the link between such performance and employment has rarely been estimated rigorously. Using the ASEAN-5 firms’ data from Q1-2018 to Q3-2021, this study shows how the pandemic affects firms’ revenue, cost, profitability, and employment heterogeneously across countries. It is argued that while revenue losses are the main challenge, widespread and prolonged restrictions in some countries have created extra complications in idle inventories and labour. In response to the revenue shocks, firms reduce their employment with an elasticity of around 0.10, indicating that a 10 per cent revenue decline is associated with a 1 per cent headcount reduction in the short run. A further examination using event analyses reveals that the path of labour adjustment is diverse across countries and industries, reflecting the degree of pandemic severity and countries’ structural issues.

Informal employment and business cycles in emerging market economies

We investigate how informal employment (hi) is relevant for shaping the aggregate dynamics in EMEs. Empirical evidence suggests that it is (i) countercyclical in Mexico, Colombia, and Turkey and (ii) negatively related to formal employment (hf) in Mexico and positively in Colombia and Turkey. To rigorously examine this empirical evidence, we build a small open economy model with both formal and informal labour markets, incorporating stationarity and trend shocks to TFP. As a novel contribution, we also allow for labour adjustment costs in the model to account for employment protection laws which differ across these economies. We then examine (i) the effect of changes in the degree of employment protection on hi and business cycles in EMEs and (ii) the extent to which hi acts as a buffer to the labour market in the face of adverse shocks. We find that this model can capture key stylized facts of the labour markets in these economies. Our model suggests that hi acts as a buffer and propagates positivity during adverse shocks given its countercyclicality while hf is pro-cyclical, findings supported by the documented empirical evidence. Regarding volatilities, hi does not act as a buffer since hf is more volatile than hi in the model which contrasts with the evidence in the data for these economies except Colombia.

Zero leverage puzzle: Do labour laws matter?

AbstractExploiting the staggered passage of labour protection laws in the United States, we find that higher labour adjustment costs increased the likelihood of observing zero leverage firms by 22%. This effect is significantly larger in states with stronger unionization, in industries with higher volatility and concentration, and in firms with higher labour intensity. Both within‐firm changes in debt policies and higher propensity of newer firms to be debt‐free are important in explaining these patterns. Overall, our work contributes to the literature on the relation between financial and labour markets by highlighting the role of labour laws in explaining the zero‐leverage puzzle.

The information technology revolution and structural labor change: Evidence from China

In this paper, we investigate the role of the new generation of information technology (IT) in explaining process of structural labor change in China. For the analyses, we develop a general equilibrium model of structural labor change driven by both the new technology and the old technology. We improve the model by distinguishing between these two technologies, introducing the new technology penetration rate, and considering the differences in the production structure. We calibrate the parameters according to China's economic characteristics based on Chinese labor market data from 1978 to 2018 and then design a series of counterfactual experiments. The results show that our benchmark model depicts the dynamic characteristics of China's structural labor changes since the reform and opening-up process. The impact of labor market distortions and structural production differences on changes in the labor reallocation is limited. The progress of the new generation of IT may significantly promote China's structural labor adjustment.

How do labor adjustment costs affect corporate tax planning? Evidence from labor skills

Labor adjustment costs (LACs) are a broad concept and involve costs incurred to search, hire, train, retain, and fire employees. Using the level of labor skills as a proxy for LACs, I find that higher LACs are associated with greater tax savings. The effect is stronger for firms facing more intense competition, and firms in states that strengthen labor protection, but weaker for firms in states that restrain labor mobility. High-LAC firms avoid taxes in order to generate precautionary cash. Collectively, the evidence indicates a significant influence of frictions in labor markets (i.e., LACs) on corporate tax planning behavior.

Comorbility symptoms in AHDH adult patients

IntroductionAdults may continue suffering AHDH symptoms after this condition is recognized and typified in children. Different works provide evidence that adults have an even more complicated variety of psychiatric disorders than children, as an increased risk of problems stemming from substance abuse, depression, anxiety, increased risk of traffic accidents, and also sexual transmission diseases.ObjectivesThere was known that adults could continue suffering symptoms derived from his infantile ADHD. We wonder if the majority of the young males derived to our consultation present compatible symptoms with adult ADHD. This condition promotes the onset of substance use and may lead to latent psychosis onset.MethodsWe analyzed 39 patients derived by suspicion of psychiatric pathology, aged between 17 and 35. They stem to clinical psychology for study of features of personality (Million Questionnaire). Another questionnaire was used also autoapplied for sifted of the ADHD in adults (ASRS_V1:1). According to the criteria DSM-IV TR, the patient had moderate symptoms of ADHD if it was fulfilling 6 or more diagnostic criteria according to their answers in the screening questionnaire.ResultsThe results supported the existence of impulsivity, aggression, irritability, problems with compliance and substance abuse.ConclusionsADHD is not only a problem of distractibility or worry, but a deeper and extensive alteration caused by the deterioration of a set of cerebral activities. An early treatment in the childhood could prevent devastating consequences for their development, since they include the majority of the functional areas of the patient and it impedes their later social and labor adjustment.DisclosureNo significant relationships.

The Experience and Coping Process of Women With Breast Cancer Undergoing Neoadjuvant Chemotherapy

Neoadjuvant chemotherapy is commonly performed to reduce the size of tumors before partial mastectomy to improve the rate of breast-conservation. Few studies have been conducted to assess the neoadjuvant chemotherapy experience of women diagnosed with breast cancer and their responses to it. To explore the experience of women diagnosed with breast cancer who received neoadjuvant chemotherapy and their responses to it. The grounded theory was adopted as the methodology. Participants were recruited using purposive sampling. The data were collected using semi-structured, in-depth interviews and analyzed using open, axial, and selective coding. A total of 15 women newly diagnosed with breast cancer participated in this study, with information showing that the core category oscillated between the sizes of the tumor. The three categories included difficulty in coping with the physical response to chemotherapy, absence of role fulfillment, and uneasy emotions. The coping strategies used by the participants included: body and mind adjustment, hiding, family labor adjustment, and changing the pace of social life. The participants experienced tremendous physical and psychological stress during their neoadjuvant chemotherapy, in which tumor response assessment served as a critical time point. Medical professionals, in addition to noting changes in women's physiological response, must pay attention to their psychological burden and provide emotional support and treatment information as needed.

The negative hiring rate premium on stock returns in the Korean stock market

This study examines the effect of labor market friction on asset pricing in the Korean stock market. We find a general negative relation between hiring rates and future stock returns, but this relation almost disappears for firms experiencing financial distress or high labor turnover. In addition, we demonstrate that the negative hiring premium is larger across firms with high-skilled workers than those with low-skilled workers and is more prominent for male than for female hiring rates. Finally, we show that firms belonging to large business groups have larger labor adjustment costs due to their unique recruitment process.

Employment Protection Legislation and Labour Market Outcomes: A Unit Level Analysis of the Indian Manufacturing Sector

Abstract Building on insights from the insider-outsider theory, we examine the effects of the Employment Protection Legislation (EPL) on labour market outcomes, using high-court verdicts on labour disputes invoking Chapter 5-A and 5-B of the Industrial Disputes Act. Our regression analysis of a statewise unit-level dataset suggests that pro-worker judicial verdicts lead to an increase in wages and labour productivity especially in labour intensive industries, but discourage employment. The study demonstrates how the insider-outsider model combined with the labour market segmentation theory, unlike labour adjustment models, explain such findings consistently. The results suggest that loosening the EPL regime will have implications on the balance between the quantity and the quality of jobs, with serious consequences on industrial performance.

Patterns of Labour Market Adjustment to Trade Shocks with Imperfect Capital Mobility

Abstract We explore how different investment frictions affect the patterns of responses of labour markets to tariff cuts. To investigate these patterns, we formulate a multi-sector dynamic model featuring capital and labour adjustment costs that we fit to Argentine data. Using counterfactual simulations of a tariff decline in the textile sector, we show that capital adjustment can create long-run responses of real wages that are larger than the short-run responses. This happens as textile firms disinvest during the transition. We also show that the reduction of tariffs on capital inputs boosts investment and real wages across sectors.

Uncertainty and firms’ labour decisions. Evidence from European countries

ABSTRACT Uncertainty affects employers’ decisions about their workforce as well as capital. We exploit differences in how firms change the size of their workforce when uncertainty increases. Using data from the Wage Dynamic Network Survey for 25 European countries, we first construct, unlike the usual aggregate indicators, a set of uncertainty indicators exploiting each firm’s microeconomic environment. We combine variability from the country, sector and size of the firm. Secondly, we investigate the effect of uncertainty on a firm’s strategies to adjust labour through hiring and firing. The results reveal that firms reduce hiring and recur to individual layoffs more frequently when uncertainty increases. An increase of one standard deviation in the uncertainty indicator is associated with an increase in the probability of having frozen hiring by from 9% to 16% of a standard deviation. We also find more significant effects when firms face credit constraints and labour adjustment costs are higher.