Solving labor demand models under asymmetric adjustment costs

This paper provides a closed-form solution for a labor demand model under asymmetric adjustment costs. The gross hirings decision rule is a non-linear increasing function of the marginal value of employment, either concave or convex, depending on the structure of adjustment costs. Moreover, the model exhibits skewed distribution of gross hirings. The findings are useful in allowing for comparisons among approximation methods in computational economics and among estimation methods in econometrics. This non-linear model allows to investigate the complicated effects of shocks and economic policy on the labor market dynamics. (C) 2002 Elsevier Science B.V. All rights reserved.