Essays on labor demand.

Abstract

The thesis research investigates the effects of income and employment security policies, particularly unemployment insurance (UI), on labor demand. The first essay explores the degree of flexibility of both employment and hours worked in British, Canadian, and American manufacturing industries using the standard adjustment cost model under nonmyopic expectations. The empirical results dispel the prevalent observation that British industries adjust hours worked rather than employment in response to real wage and product demand disturbances relative to North American employers. Furthermore, in all countries industries characterized by high employment adjustment possess high hours adjustment. The second essay assesses the U.S. and European evidence on the effects of UI on entry into unemployment. It finds that West Europe's experience does not undermine the Baily-Feldstein-Topel emphasis on imperfect experience-rating of UI taxes. It proceeds to argue that examination of other employment security policies together with UI can explain comparative U.S. and European layoff behavior. The third essay details the effects of UI on a firm's recall decision. It models the complex provisions determining a state's potential duration of UI benefit receipt and level of benefits. The analysis employs labor contract theory to derive the theoretical impact of changes in the program parameters on length of layoff. Examination of panel data on states' average insured unemployment spell length and UI system parameters reveals that uniform potential duration states possess longer unemployment spells than variable formula potential duration states. Estimation of a covariance model reveals that changes in the potential duration schedule parameters do impact unemployment spell length as the labor contract theory predicts. However the UI system parameters do not have a large estimated impact on unemployment spell length.