Paper #944

Title:

Organizational capital and employment fluctuations

Author:

Thijs van Rens

Date:

November 2004

Abstract:

In this paper I present a model in which production requires two types of labor inputs: regular productive tasks and organizational capital, which is accumulated by workers performing organizational tasks. By allocating more workers from organizational to productive tasks, firms can temporarily increase production without hiring. The availability of this intensive margin of labor adjustment, in combination with adjustment costs along the extensive margin (search frictions, firing costs, training costs), makes it optimal to delay employment adjustments. Simulations indicate that this mechanism is quantitatively important even if only a small fraction of workers perform organizational tasks, and explains why the hiring rate is persistent and why employment is slow to recover after the end of a recession.

Keywords:

Business cycles, labor market, organizational capital, jobless recoveries

JEL codes:

D92, E24, J41, J64

Area of Research:

Macroeconomics and International Economics

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