Paulo R. Mota

Hysteresis in the Dynamics of Employment

In this paper, we derive a micro model of employment demand with hysteresis whereby firms can adjust along an intensive (employment) and an extensive (hours of work) margin. A mechanism of aggregation over heterogeneous firms is used to generate the corresponding aggregate dynamics. Longitudinal micro monthly data on a representative sample of Portuguese manufacturing firms are used in the empirical analysis. Our results indicate that signs of hysteresis found at the micro level do not vanish completely by aggregation and that hysteresis is magnified by the existence of an additional margin of adjustment (the hours adjustment margin).

Nonconvex adjustment costs, hysteresis, and the macrodynamics of employment

This study provides new evidence on the effects of nonconvex employment adjustment costs at the aggregate level. Using the Preisach model of hysteresis, we find that hysteresis commonly found at the firm level due to nonconvex adjustment costs do not completely vanish at the macro level. Hysteresis signs are particularly present in small firms and less so in large ones. The consequence is that the equilibrium state of employment, instead of being unique, becomes path dependent, that is, determined by the history of previous adjustments. The key implication is that macroeconomic policies designed to stimulate the economy may have long-run effects.

The Macrodynamics of Employment Under Uncertainty

In the context of the current Eurozone crisis, the study of the effects of uncertainty in the macrodynamics of employment is a topic of major importance. This paper tackles this challenging question. At a first step a non-ideal relay hysteresis type microeconomic model of employment adjustment with uncertainty is presented. Then, an aggregation mechanism is explicitly considered in order to analyse the aggregate level of employment. Finally, as a new feature, uncertainty is considered endogenously determined by the actual state of the economy. Aggregate time-series built from micro monthly data on a representative sample of Portuguese manufacturing firms is used on a computational implementation of the linear play model of hysteresis. Results illustrate that uncertainty enhances the hysteretic behaviour of employment in small firms, but this effect is not significant for large ones.