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Labor Responses, Regulation and Business Churn

Aloi, Marta; Dixon, Huw; Savagar, Anthony

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Associate Professor

Huw Dixon

Anthony Savagar


We develop a model of sluggish firm entry to explain short-run labor responses to technology shocks. We show that the labor response to technology and its persistence depend on the degree of returns to labor and the rate of firm entry. Existing empirical results support our theory based on short-run labor responses across US industries. We derive closed-form transition paths that show the result occurs because labor adjusts instantaneously whilst firms are sluggish, and closed-form eigenvalues show that stricter entry regulation results in slower convergence to steady state. Finally we show that our theoretical results hold in a quantitative model with capital accumulation and interest rate dynamics.

Journal Article Type Article
Acceptance Date Aug 27, 2019
Online Publication Date Jul 13, 2020
Publication Date Feb 21, 2021
Deposit Date Aug 30, 2019
Publicly Available Date Jul 14, 2022
Journal Journal of Money, Credit and Banking
Print ISSN 0022-2879
Electronic ISSN 1538-4616
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 53
Issue 1
Pages 119-156
Keywords Deregulation; Dynamic entry; Endogenous entry costs; Short-run labor responses
Public URL
Publisher URL
Additional Information This is the peer reviewed version of the following article: Aloi, M., Dixon, H., & Savagar, A. (2020). Labor Responses, Regulation and Business Churn. Journal of Money, Credit and Banking,, which has been published in final form at This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.


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