Abstract
This paper will study how firms react to demand shocks, examining how different aspects of flexibility shape their responses. The main findings are: very few firms choose to adjust price in response to a demand shock; firms with more flexibility are more likely to respond to demand shocks by adjusting employment and hours. The results provide a microeconomic explanation for recent macroeconomic evidence that labour input has become more closely aligned to the business cycle.
| Original language | English |
|---|---|
| Pages (from-to) | 362-379 |
| Number of pages | 18 |
| Journal | Oxford Economic Papers |
| Volume | 49 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 1 Jul 1997 |
Funding
This research was supported by a grant from the UK Department of Education and Employment through the Labour Market Imperfections Group to whom we are very grateful. Part of this work was done by Haskel when visiting the Australian National University, whom he thanks for their hospitality. We thank Richard Disney, and seminar audiences at the ANU, QMW, and the Bank of England for their comments. The views expressed, and any errors, are those of the authors alone.
ASJC Scopus subject areas
- Economics and Econometrics
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