Gerard A. Pfann

Asymmetric Adjustment Costs in Non-linear Labour Demand Models for the Netherlands and U.K. Manufacturing Sectors

The costs of hiring a worker generally differ in size from the firing costs. This article investigates optimal labour demand schedules for production and nonproduction workers of firms that operate under uncertainty and face asymmetric costs of adjusting their workforce. In the empirical part generalised methods of moments (GMM) estimates of the structural parameters of the Euler conditions for production and nonproduction workers are presented, together with specification and structural stability tests, using time series data of the Netherlands and UK manufacturing sectors. We find that asymmetric adjustment costs play an important role in the explanation of unbalanced labour demand between upward and downward movements of the business cycle. Moreover, hiring costs exceed firing costs of production workers, whereas firing costs exceed hiring costs of nonproduction workers.

Nonlinear Interest Rate Dynamics and Implications for the Term Structure

This paper explores nonlinear dynamics in the time series of the short-term interest rate in the United States. The proposed model is an autoregressive threshold model augmented by conditional heteroskedasticity. The performance of the model is evaluated by considering its implications for the term structure of interest rates. The nonlinear dynamics imply a form of nonlinearity in the levels relation between the long and the short rate.

Exit and Survival in a Concentrating Industry: The Case of Daily Newspapers in the Netherlands

This paper studies the effects of aggregate, industry-, and firm-specific factors on the exit hazard rates in the market for daily newspapers in the Netherlands from 1950 to 1996. We present a brief overview of the exit literature. On the basis of the existing empirical evidence, we decided to specify and estimate exponential and piecewise constant hazard rate models. We find that exit hazard rates of daily newspapers depend on the circulation size, ownership, and number of incumbents. Moreover, the effects are time-dependent. We do not find any significant effect of macroeconomic factors.

Pooling in Dynamic Panel-Data Models: An Application to Forecasting GDP Growth Rates

In this article, we analyze issues of pooling models for a given set of N individual units observed over T periods of time. When the parameters of the models are different but exhibit some similarity, pooling may lead to a reduction of the mean squared error of the estimates and forecasts. We investigate theoretically and through simulations the conditions that lead to improved performance of forecasts based on pooled estimates. We show that the superiority of pooled forecasts in small samples can deteriorate as the sample size grows. Empirical results for postwar international real gross domestic product growth rates of 18 Organization for Economic Cooperation and Development countries using a model put forward by Garcia-Ferrer, Highfield, Palm, and Zellner and Hong, among others illustrate these findings. When allowing for contemporaneous residual correlation across countries, pooling restrictions and criteria have to be rejected when formally tested, but generalized least squares (GLS)-based pooled forecasts are found to outperform GLS-based individual and ordinary least squares-based pooled and individual forecasts.

Reputation and earnings: the roles of quality and quantity in academe

We examine the determinants of professional reputation. Does quantity of exposures raise reputation independent of quality? Does quality of the most important exposure have extra effects on reputation? In a very large sample of academic economists, there is little evidence that a scholars most influential work provides any extra enhancement of reputation. Quality rankings matter more than absolute quality. Quantity has a zero or even negative effect on proxies for reputation. Data on salaries, however, show positive effects of quantity independent of quality. We test explanations for the differences between the determinants of reputation and salary. (JEL L14, J31)

Sources of Asymmetry in Production Factor Dynamics

The aim of this paper goes some steps beyond the specification and estimation of production technologies and nonlinear dynamic optimization rules by instrumental variables methods as initially proposed by Kennan (1979). The question, that remains unanswered by the mere estimation of the structural parameters, is which sources of asymmetry contribute most to the shape of the factor input cycles. To investigate that question, we solve a nonlinear rational expectations model using an extended version of the parameterized expectations algorithm (PEA) put forward by Den Haan and Marcet (1990) and Marcet and Marshall (1994). When we completely specify the generating processes of the models forcing variables, the PEA solution method enables us to identify the importance of the two possible sources of asymmetry in factor input dynamics that we consider in this paper. One source is behavioral or internal asymmetry (asymmetry in the propagation mechanism) that results from facts that are typically incorporated in what is stated as the costs of adjustment (cf. Hamermesh and Pfann, 1996a). The second source considered is external non-linearity that is induced by the variables that drive the model. External non-linearity could, for example, be due to nonlinear pricing rules, including for example downward rigidities, or to asymmetrically distributed taste or productivity shocks. The differences between those two possible sources are important because the first, behavioral, source is partly endogenous and can be controlled for by the firm, while the second, external, source cannot. The estimates of the models structural parameters are based on undetrended seasonally adjusted quarterly time series data of the Netherlands manufacturing sector for the period 1971.I - 1990.IV. Economic growth is considered to be a common trend that results from accumulated productivity shocks. We find that behavioral asymmetry, resulting from asymmetric adjustment costs, contributes substantially to the non-linearity of factor input dynamics: 53 percent of the total second order effect for capital and 48 percent for employment is accounted for by behavioral asymmetry. Our analysis shows that the significance of this finding is not simply an artifact due to the presence of external non-linearity. It is an important structural phenomenon that has to be accounted for when analyzing factor input dynamics at an aggregate level.

Downsizing and Heterogeneous Firing Costs

A structural labor demand model is developed that allows for worker heterogeneity regarding firing costs and productivity. It is estimated for a firm in demise when 3,650 workers were made redundant in a restructuring following bankruptcy. This was the largest mass layoff in the history of the Netherlands. The model produces sharp predictions on how firing thresholds depend on individual worker characteristics. The signs of the estimated coefficients are consistent with these predictions. The model correctly predicts 68 of individual worker displacement. The results provide new in-depth knowledge on how firing costs influence personnel decisions.

Factor demand models with nonlinear short-run fluctuations

Abstract This paper considers asymmetric costs of adjustment that propagate nonlinear shortrun fluctuations in stochastic factor demand systems. The model endogenously generates asymmetric cyclical demand for capital and labour between peaks and troughs of the business cycle. The empirical analysis of the model is based on quarterly time series data of the Dutch manufacturing sector for the period 1971.I–1984.IV and annual time series data of the U.K. manufacturing sector for the period 1955–1986. I find important differences of adjustment speed of capital and labour inputs between expansionary and contractionary phases of the business cycle.

The Role of Specific and General Human Capital after Displacement

Displaced workers experience significant and long‐lasting wage losses. However, the average wage losses hide the tremendous differences among workers. So far, the differences are explained by differences in accumulated on‐the‐job experience, education level, age, and so on, but a large variation among similar workers remain. In this paper we investigate the effect of general and specific human capital on the unemployment duration and wage losses during the first three years following displacement. Information on the specificity of a job or function allows us to quantify the impact on the wage losses. We are able to rank positions in terms of the specificity of accumulated human capital.

Sequentiality Versus Simultaneity: Interrelated Factor Demand

Firms may adjust capital and labor sequentially or simultaneously. In this paper, we develop a structural model of interrelated factor demand subject to nonconvex adjustment costs and estimated by simulated method of moments. Based on Norwegian manufacturing industry plant-level data, parameter estimates reveal cost advantages for adjusting capital and making net changes in labor simultaneously. Factor demand models with fully specified interrelated adjustment costs structures perform best to describe the dynamic panel data.