On The Joint Behavior of Hiring and Investment Preliminary and - - PowerPoint PPT Presentation

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

On The Joint Behavior of Hiring and Investment Preliminary and Incomplete Eran Yashiv Tel Aviv University CEP (LSE), IZA and CEPR Sandjberg, October 10, 2009

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Motivation and Background

This paper studies the joint behavior of investment and hiring

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Motivation and Background

This paper studies the joint behavior of investment and hiring The model features costs of adjustment and the present values of hiring and investment

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

A number of key macro contexts:

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

A number of key macro contexts: Evidently important for studying business cycles.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

A number of key macro contexts: Evidently important for studying business cycles. Costs of adjustment – important for NK models; future real marginal costs drive in‡ation in the NKPC.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

A number of key macro contexts: Evidently important for studying business cycles. Costs of adjustment – important for NK models; future real marginal costs drive in‡ation in the NKPC. Hiring costs – a crucial ingredient in search and matching models; search costs for …rms.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

A number of key macro contexts: Evidently important for studying business cycles. Costs of adjustment – important for NK models; future real marginal costs drive in‡ation in the NKPC. Hiring costs – a crucial ingredient in search and matching models; search costs for …rms. Investment costs – Tobin’s Q approach, important for capital investment and …nancial markets.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Treatment in much of the literature has often focused on the behavior of one and not both.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Treatment in much of the literature has often focused on the behavior of one and not both. Or has posited costs pertaining to one but not the other.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Treatment in much of the literature has often focused on the behavior of one and not both. Or has posited costs pertaining to one but not the other. Examples: search and matching models with no capital; Q models with no labor.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Treatment in much of the literature has often focused on the behavior of one and not both. Or has posited costs pertaining to one but not the other. Examples: search and matching models with no capital; Q models with no labor. Even business cycle models (CEE, JPE 2005; SW, AER 2007) feature adj. costs of K only.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Treatment in much of the literature has often focused on the behavior of one and not both. Or has posited costs pertaining to one but not the other. Examples: search and matching models with no capital; Q models with no labor. Even business cycle models (CEE, JPE 2005; SW, AER 2007) feature adj. costs of K only. All too often empirical work has reported weak results.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Hence focus here is on the joint behavior

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Hence focus here is on the joint behavior Explicit modelling of the interaction of adjustment costs on K and N

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Hence focus here is on the joint behavior Explicit modelling of the interaction of adjustment costs on K and N In previous work (Merz and Yashiv, AER 2007) it was shown useful for explaining asset (stock) prices

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Structure of the Presentation

Stylized Facts

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Structure of the Presentation

Stylized Facts The Model

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Structure of the Presentation

Stylized Facts The Model Structural Estimation

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Structure of the Presentation

Stylized Facts The Model Structural Estimation Characterizing The Joint Behavior of Hiring and Investment

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Structure of the Presentation

Stylized Facts The Model Structural Estimation Characterizing The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Facts

A key fact of the U.S. economy is that gross hiring and gross investment rates are negatively correlated

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Facts

A key fact of the U.S. economy is that gross hiring and gross investment rates are negatively correlated This is so both contemporaneously and at leads and lags.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 1 Cross-Correlations

• a. levels

( h

n )t, ( i k )ti

lag correlation lead correlation

• 0.60
• 0.60

1

• 0.58

1

• 0.59

4

• 0.49

4

• 0.56

8

• 0.37

8

• 0.55

12

• 0.27

12

• 0.60

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 1 Cross-Correlations

• b. Logged, HP-…ltered

( h

n )t, ( i k )ti

lag correlation lead correlation

• 0.15
• 0.15

1

• 0.18

1

• 0.15

4

• 0.07

4 0.02 8

• 0.10

8 0.10 12

• 0.09

12

• 0.03

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Hiring and investment are highly persistent and highly volatile; investment is more so. Table 2 Volatility and Persistence of Gross Hiring and Investment Rates moment

h n i k

std of log 0.10 0.15 AC 1 lag 0.93 0.97 AC 4 lag 0.85 0.82 AC 8 lags 0.73 0.60 AC 12 lags 0.67 0.46

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

They are more volatile than the cyclical measures. Table 3 Co-Movement of Gross Hiring and Investment Rates with Key Variables

• a. Volatility and Relative Volatility – HP …ltered

moment

h n i k

std of log 0.024 0.053 relative std to GDP f

• 1. 21
• 2. 63

relative std to f

n

• 1. 99
• 4. 33

relative std to f

k

• 1. 11
• 2. 41

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

• b. Co-Movement (contemporaneous) – HP …ltered

moment

h n i k

correlation with GDP f

• 0.20

0.80 correlation with f

n

• 0.03

0.52 correlation with f

k

• 0.17

0.76

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

• c. Co-Movement (dynamic) – HP …ltered

h n, yti

moment

• 4
• 1

1 4 correlation with GDP f

• 0.12
• 0.26
• 0.20
• 0.15

0.00 correlation with f

n

0.01

• 0.06
• 0.03
• 0.06

0.00 correlation with f

k

• 0.13
• 0.24
• 0.17
• 0.13

0.02

i k , yti

moment

• 4
• 1

1 4 correlation with GDP f 0.46 0.83 0.80 0.66 0.05 correlation with f

n

0.61 0.62 0.52 0.34

• 0.27

correlation with f

k

0.58 0.84 0.75 0.57

• 0.11

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Need to explain series which are:

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Need to explain series which are:

1

volatile

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Need to explain series which are:

1

volatile

2

persistent

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Need to explain series which are:

1

volatile

2

persistent

3

have a negative correlation

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Need to explain series which are:

1

volatile

2

persistent

3

have a negative correlation

4

• ne is pro-cyclical; the other counter- or a-cyclical

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

The Model

PE model (Tobin’s Q) for both K and N yt = f (zt,nt, kt), (1)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

The Model

PE model (Tobin’s Q) for both K and N yt = f (zt,nt, kt), (1) kt+1 = (1 δt)kt + it, 0 δt 1. (2) nt+1 = (1 ψt)nt + ht, 0 ψt 1. (3)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

πt = [f (zt,nt, kt) g (it, kt, qtvt, nt)] wtnt . (4) cft = (1 τt)πt (1 χt τtDt) e pI

t it

(5)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

πt = [f (zt,nt, kt) g (it, kt, qtvt, nt)] wtnt . (4) cft = (1 τt)πt (1 χt τtDt) e pI

t it

(5) βt+j = 1 1 + rt+j1,t+j

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

πt = [f (zt,nt, kt) g (it, kt, qtvt, nt)] wtnt . (4) cft = (1 τt)πt (1 χt τtDt) e pI

t it

(5) βt+j = 1 1 + rt+j1,t+j max

fit+j,ht+jg Et

(

∞

∑

j=0

j

∏

i=0

βt+i ! cft+j ) (6)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

πt = [f (zt,nt, kt) g (it, kt, qtvt, nt)] wtnt . (4) cft = (1 τt)πt (1 χt τtDt) e pI

t it

(5) βt+j = 1 1 + rt+j1,t+j max

fit+j,ht+jg Et

(

∞

∑

j=0

j

∏

i=0

βt+i ! cft+j ) (6) The …rm takes the variables w, pI , δ, ψ, and β as given.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

F.O.C, asset-pricing approach (1 τt)

• git + pI

t

• =

Et 8 < : βt+1 (1 τt+1)

• fkt+1 gkt+1

+(1 δt+1)(git+1 + pI

t+1)

• 9

= ; (7) (1 τt) ght = Et 8 < : βt+1 (1 τt+1) fnt+1 gnt+1 wt+1 +(1 ψt+1)ght+1

• 9

= ; . (8)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Present values QK

t = Et

( ∑∞

j=0

• ∏j

i=0 βt+1+i

∏j

i=0 (1 δt+1+i)

• (1 τt+1+j)
• fkt+1+j gkt+1+j
• )

. (9)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Present values QK

t = Et

( ∑∞

j=0

• ∏j

i=0 βt+1+i

∏j

i=0 (1 δt+1+i)

• (1 τt+1+j)
• fkt+1+j gkt+1+j
• )

. (9) QN

t = Et

( ∑∞

j=0

• ∏j

i=0 βt+1+i

∏j

i=0

• 1 ψt+1+i
• (1 τt+1+j)
• fnt+1+j gnt+1+j wt+1+j
• )

. (10)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Estimation

f (zt,nt, kt) = eztnt αk1α

t

, 0 < α < 1. (11) g() = 2 6 6 6 6 4 f1 it

kt + f2 ht nt + f3 it kt ht nt

+ e1

η1 ( it kt )η1

+ e2

η2 ( ht nt )η2

+ e3

η3

• it

kt ht nt

η3 3 7 7 7 7 5 f (zz, nt, kt). (12)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Properties of g function:

1

CRS in i, k, h, n

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Properties of g function:

1

CRS in i, k, h, n

2

Generalized convex (η1, η2, η3 are estimated)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Properties of g function:

1

CRS in i, k, h, n

2

Generalized convex (η1, η2, η3 are estimated)

3

Allows for interaction f3

• it

kt ht nt

• , e3

η3

• it

kt ht nt

η3

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Properties of g function:

1

CRS in i, k, h, n

2

Generalized convex (η1, η2, η3 are estimated)

3

Allows for interaction f3

• it

kt ht nt

• , e3

η3

• it

kt ht nt

η3

4

Special cases: f2ht ft

nt , e1 2 i 2

t

kt f k

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

The data are quarterly, pertain to the private sector of the U.S. economy, and cover the period 1976-2008.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

The data are quarterly, pertain to the private sector of the U.S. economy, and cover the period 1976-2008. They include f , k, n, i, h, β, w, δ, ψ, pI , τ

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

These data have the following features: (i) They pertain to the U.S. private sector, thus not confounding the analysis with government hiring and investment. (ii) Both hiring h and investment i refer to gross ‡ows. Likewise, separation of workers ψ and depreciation for capital δ are gross measures. (iii) The estimating equations take into account taxes and rules regarding depreciation.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

These data have the following features: (i) They pertain to the U.S. private sector, thus not confounding the analysis with government hiring and investment. (ii) Both hiring h and investment i refer to gross ‡ows. Likewise, separation of workers ψ and depreciation for capital δ are gross measures. (iii) The estimating equations take into account taxes and rules regarding depreciation. Points (ii) and (iii) require a substantial amount of computation, which is explained in the appendix.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Estimation issues:

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Estimation issues:

1

Key object is cost function g

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Estimation issues:

1

Key object is cost function g

2

Degree of convexity (…xed or free powers)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Estimation issues:

1

Key object is cost function g

2

Degree of convexity (…xed or free powers)

3

Interaction between costs

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 5, panel a, …xed powers

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 5, panel a, …xed powers Columns 1-3 of the table consider three alternative specifcations of the powers in the adjustment cost function

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 5, panel a, …xed powers Columns 1-3 of the table consider three alternative specifcations of the powers in the adjustment cost function Includes the quadratic (η1 = η2 = 2) with a linear interaction (η3 = 1).

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 5, panel a, …xed powers Columns 1-3 of the table consider three alternative specifcations of the powers in the adjustment cost function Includes the quadratic (η1 = η2 = 2) with a linear interaction (η3 = 1). To facilitate comparison with the literature:

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 5, panel a, …xed powers Columns 1-3 of the table consider three alternative specifcations of the powers in the adjustment cost function Includes the quadratic (η1 = η2 = 2) with a linear interaction (η3 = 1). To facilitate comparison with the literature: Column 4 takes the standard case of the investment literature whereby there are only quadratic costs for adjusting capital (f2 = e2 = e3 = 0; η1 = 2);

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 5, panel a, …xed powers Columns 1-3 of the table consider three alternative specifcations of the powers in the adjustment cost function Includes the quadratic (η1 = η2 = 2) with a linear interaction (η3 = 1). To facilitate comparison with the literature: Column 4 takes the standard case of the investment literature whereby there are only quadratic costs for adjusting capital (f2 = e2 = e3 = 0; η1 = 2); Column 5 does the same for hiring (f1 = e1 = e3 = 0; η2 = 2);

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 5, panel a, …xed powers Columns 1-3 of the table consider three alternative specifcations of the powers in the adjustment cost function Includes the quadratic (η1 = η2 = 2) with a linear interaction (η3 = 1). To facilitate comparison with the literature: Column 4 takes the standard case of the investment literature whereby there are only quadratic costs for adjusting capital (f2 = e2 = e3 = 0; η1 = 2); Column 5 does the same for hiring (f1 = e1 = e3 = 0; η2 = 2); Column 6 allows both but no interaction term (η1 = η2 = 2; e3 = 0).

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

In panel a, there are problems with all speci…cations.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

In panel a, there are problems with all speci…cations. Column (1), the quadratic with a linear interaction term yields a reasonable g function but the implied QN series is inconsistent with the model’s formulations.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

In panel a, there are problems with all speci…cations. Column (1), the quadratic with a linear interaction term yields a reasonable g function but the implied QN series is inconsistent with the model’s formulations. Columns 2 and 3 imply negative marginal costs of hiring.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Columns (4)–(6), which present prevalent cases in the literature, fare badly.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Columns (4)–(6), which present prevalent cases in the literature, fare badly. Column (4) has a huge standard error for the estimate of e1 and the emerging adjustment cost function does not satisfy convexity (as gii < 0)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Columns (4)–(6), which present prevalent cases in the literature, fare badly. Column (4) has a huge standard error for the estimate of e1 and the emerging adjustment cost function does not satisfy convexity (as gii < 0) Column (5) has a very high standard error for f2 (though the resulting adjustment cost function is reasonable).

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Columns (4)–(6), which present prevalent cases in the literature, fare badly. Column (4) has a huge standard error for the estimate of e1 and the emerging adjustment cost function does not satisfy convexity (as gii < 0) Column (5) has a very high standard error for f2 (though the resulting adjustment cost function is reasonable). Column (6), without an interaction term (e3 = 0), yields negative total adjustment costs in part of the sample and negative marginal investment costs throughout the sample.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 5, panel b, free powers (with or without restrictions).

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 5, panel b, free powers (with or without restrictions). Shows that the powers are estimated around 4 for η1, 3.5 for η2 and 2 for η3.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 5, panel b, free powers (with or without restrictions). Shows that the powers are estimated around 4 for η1, 3.5 for η2 and 2 for η3. The standard errors of these estimates are low.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Table 5, panel b, free powers (with or without restrictions). Shows that the powers are estimated around 4 for η1, 3.5 for η2 and 2 for η3. The standard errors of these estimates are low. When α is freely estimated – 0.68 with a low standard error.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

The scale estimates – i.e. estimates of e1, e2, e3, f1, f2, f3 – usually have high standard errors

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

The scale estimates – i.e. estimates of e1, e2, e3, f1, f2, f3 – usually have high standard errors Throughout the panel, p-values of the J-statistics are higher than those of panel a.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

The scale estimates – i.e. estimates of e1, e2, e3, f1, f2, f3 – usually have high standard errors Throughout the panel, p-values of the J-statistics are higher than those of panel a. The g function implied by the estimates is reasonable across all speci…cations and satis…es convexity requirements.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

The scale estimates – i.e. estimates of e1, e2, e3, f1, f2, f3 – usually have high standard errors Throughout the panel, p-values of the J-statistics are higher than those of panel a. The g function implied by the estimates is reasonable across all speci…cations and satis…es convexity requirements. In what follows, I use column column (8) of Table 5b as the benchmark speci…cation.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The Joint Behavior of Hiring and Investment

Implications of the estimates:

1

Value of adjustment costs

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The Joint Behavior of Hiring and Investment

Implications of the estimates:

1

Value of adjustment costs

2

Present value decomposition

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The Joint Behavior of Hiring and Investment

Implications of the estimates:

1

Value of adjustment costs

2

Present value decomposition

3

Co-movement analysis

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The Joint Behavior of Hiring and Investment

Implications of the estimates:

1

Value of adjustment costs

2

Present value decomposition

3

Co-movement analysis

4

Business cycle analysis

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Total costs as a fraction of GDP (i.e. g

f ) are 3% of output

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Marginal costs of hiring (i.e. gh) in terms of average output per worker ( f

n) – 0.21.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Marginal costs of hiring (i.e. gh) in terms of average output per worker ( f

n) – 0.21.

Roughly equivalent to 32% of quarterly wages.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Marginal costs of hiring (i.e. gh) in terms of average output per worker ( f

n) – 0.21.

Roughly equivalent to 32% of quarterly wages. In other words, …rms pay on the margin the equivalent of about 4 weeks of wages to hire the worker.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

There is little empirical evidence on the quantitative importance of such adjustment costs.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

There is little empirical evidence on the quantitative importance of such adjustment costs. Mortensen and Nagypal (2006, page 30): “Although there is a consensus that hiring costs are important, there is no authoritative estimate of their magnitude. Still, it is reasonable to assume that in order to recoup hiring costs, the …rm needs to employ a worker for at least two to three

• quarters. When wages are equal to their median level in the

standard model (w = 0.983), hiring costs of this magnitude correspond to less than a week of wages.”

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The widely-cited Shimer (AER 2005) paper calibrates these costs at 0.213 in terms smilar to gh here, using a linear cost function.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The widely-cited Shimer (AER 2005) paper calibrates these costs at 0.213 in terms smilar to gh here, using a linear cost function. Hagedorn and Manovskii (AER 2008) – 0.057 to 0.067 in current terms (or around 1.1 to 1.3 weeks of wages).

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The widely-cited Shimer (AER 2005) paper calibrates these costs at 0.213 in terms smilar to gh here, using a linear cost function. Hagedorn and Manovskii (AER 2008) – 0.057 to 0.067 in current terms (or around 1.1 to 1.3 weeks of wages). Thus the results here are exactly in line with Shimer (2005) and higher than suggested by Mortensen and Nagypal (2006)

• r Hagedorn and Manovskii (2008).

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The widely-cited Shimer (AER 2005) paper calibrates these costs at 0.213 in terms smilar to gh here, using a linear cost function. Hagedorn and Manovskii (AER 2008) – 0.057 to 0.067 in current terms (or around 1.1 to 1.3 weeks of wages). Thus the results here are exactly in line with Shimer (2005) and higher than suggested by Mortensen and Nagypal (2006)

• r Hagedorn and Manovskii (2008).

Older, micro evidence suggests a wide range of estimates, but generally higher costs.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The marginal costs of investment (i.e. gi) in terms of average

• utput per unit of capital ( f

k ) – 1.66.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The marginal costs of investment (i.e. gi) in terms of average

• utput per unit of capital ( f

k ) – 1.66.

The most natural place to look for comparisons is the Q-literature.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The marginal costs of investment (i.e. gi) in terms of average

• utput per unit of capital ( f

k ) – 1.66.

The most natural place to look for comparisons is the Q-literature. The equation links the investment-to-capital ratio to a measure of Tobin’s Q.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The marginal costs of investment (i.e. gi) in terms of average

• utput per unit of capital ( f

k ) – 1.66.

The most natural place to look for comparisons is the Q-literature. The equation links the investment-to-capital ratio to a measure of Tobin’s Q. These studies di¤er from each other and from the current study on many dimensions: the data sample used, the functional form assumed for marginal adjustment costs, additional variables included in the cost function, treatment of tax issues, and reduced form vs. structural estimation.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Nine key studies: (i) High adjustment costs. Marginal costs range between 3 to 60 in terms of average output per unit of capital. The implied total costs range between 15% to 100% of output.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Nine key studies: (i) High adjustment costs. Marginal costs range between 3 to 60 in terms of average output per unit of capital. The implied total costs range between 15% to 100% of output. (ii) Moderate adjustment costs. Marginal costs are around 1 in terms of average output per unit of capital. Total costs range between 0.5% to 6% of output.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Nine key studies: (i) High adjustment costs. Marginal costs range between 3 to 60 in terms of average output per unit of capital. The implied total costs range between 15% to 100% of output. (ii) Moderate adjustment costs. Marginal costs are around 1 in terms of average output per unit of capital. Total costs range between 0.5% to 6% of output. (iii) Low adjustment costs. Marginal costs are 0.04 to 0.5 of average output per unit of capital. Total costs range between 0.1% to 0.2% of output.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(i) The speci…cation that I run that is closest to the one used in most studies of Table 6 is the one reported in column (4) of Table 5.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(i) The speci…cation that I run that is closest to the one used in most studies of Table 6 is the one reported in column (4) of Table 5. This is the speci…cation positing a quadratic function and ignoring labor.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(i) The speci…cation that I run that is closest to the one used in most studies of Table 6 is the one reported in column (4) of Table 5. This is the speci…cation positing a quadratic function and ignoring labor. The implied total costs are 4% of output and the implied marginal costs are 1.44 of average output per unit of capital, as in studies of the moderate adjustment costs set.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(i) The speci…cation that I run that is closest to the one used in most studies of Table 6 is the one reported in column (4) of Table 5. This is the speci…cation positing a quadratic function and ignoring labor. The implied total costs are 4% of output and the implied marginal costs are 1.44 of average output per unit of capital, as in studies of the moderate adjustment costs set. (ii) The GMM results of the full model cannot be directly compared to the results of Table 6.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(i) The speci…cation that I run that is closest to the one used in most studies of Table 6 is the one reported in column (4) of Table 5. This is the speci…cation positing a quadratic function and ignoring labor. The implied total costs are 4% of output and the implied marginal costs are 1.44 of average output per unit of capital, as in studies of the moderate adjustment costs set. (ii) The GMM results of the full model cannot be directly compared to the results of Table 6. Nevertheless, the …ndings of the benchmark runs correspond to the second set, i.e., moderate adjustment costs.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Asset pricing approach Pt = R1

t+1[Dt+1 + Pt+1]

(13) Pt Dt = R1

t+1[Dt+1

Dt + Dt+1 Dt Pt+1 Dt+1 ]

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Log-linear approximation: pt dt = rt+1 + dt+1 dt + k + ρ(pt+1 dt+1) (14)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Iterating forward: pt dt =

∞

∑

j=1

ρj1k +

∞

∑

j=1

ρj1 (dt+j+1 dt+j rt+j) (15)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

In variance terms: var(pt dt) = cov pt dt,

∞

∑

j=1

ρj1 (dt+j+1 dt+j) ! cov pt dt,

∞

∑

j=1

ρj1rt+j !

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

De…ne the following:

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

De…ne the following: P1

t

• (1 τt)
• git + pI

t

• ft

kt

QK

t ft kt

D1

t+1

• (1 τt+1)

(fkt+1 gkt+1 )

ft+1 kt+1

(1 δt+1) (Rt+k)1 =

ft+k1 kt+k1 ft+k kt+k

1 βt+k 1 (1 δt+k)

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

P2

t

• (1 τt) ght

ft nt

QN

t ft nt

D2

t+1

= (1 τt+1)

fnt+1 gnt+1 wt+1

ft+1 nt+1

! 1 ψt+1 (Rt+k)2 =

ft+k1 nt+k1 ft+k nt+k

1 βt+k 1

• 1 ψt+k
• Eran Yashiv

On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Approximation for investment relation and for hiring relation separately

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Approximation for investment relation and for hiring relation separately Need to truncate sums at T

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(i) The errors of the investment equation (

e var(ptdt)) are

much more substantial than those of the hiring equation.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(i) The errors of the investment equation (

e var(ptdt)) are

much more substantial than those of the hiring equation. This has to do, among other things, with the higher value of ρ =

P D

1+ P

D in that equation. Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(i) The errors of the investment equation (

e var(ptdt)) are

much more substantial than those of the hiring equation. This has to do, among other things, with the higher value of ρ =

P D

1+ P

D in that equation.

This relative error variance decreases monotonically with T for the investment equation (from aound 0.65 to around 0.15-0.20) but changes non-monotonically for the hiring equation.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(i) The errors of the investment equation (

e var(ptdt)) are

much more substantial than those of the hiring equation. This has to do, among other things, with the higher value of ρ =

P D

1+ P

D in that equation.

This relative error variance decreases monotonically with T for the investment equation (from aound 0.65 to around 0.15-0.20) but changes non-monotonically for the hiring equation. As T changes the sample size changes and so does the variance of the error and of the log price-dividend ratio.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(ii) The co-variation of the “price-dividend” ratio in both equations with the growth rate of “dividends” is positive and with the relevant discount rate is negative (or close to zero), as should be expected.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(iii) In the investment case, the big component of the variance decomposition is the negative co-variation of the “price-dividend” ratio with the discount rate.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(iii) In the investment case, the big component of the variance decomposition is the negative co-variation of the “price-dividend” ratio with the discount rate. This comes mostly from the negative co-variation with the interest rate and with the depreciation rate.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

(iv) In the hiring case, the big component of the variance decomposition is the positive co-variation of the “price-dividend” ratio with the growth rate of “dividends,” which are essentially the pro…ts of the …rm from the job-worker match.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Consider the standard deviation of the discounted sum of dividend growth or the discounted sum of discount rates divided by the norm of the price-dividend ratio.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Consider the standard deviation of the discounted sum of dividend growth or the discounted sum of discount rates divided by the norm of the price-dividend ratio. In the case of investment, the volatility of the discounted sum

• f dividend growth is about half of that of the discounted sum
• f discount rates.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Consider the standard deviation of the discounted sum of dividend growth or the discounted sum of discount rates divided by the norm of the price-dividend ratio. In the case of investment, the volatility of the discounted sum

• f dividend growth is about half of that of the discounted sum
• f discount rates.

Hence it is not surprising that the price-dividend ratio varies more with the latter.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Consider the standard deviation of the discounted sum of dividend growth or the discounted sum of discount rates divided by the norm of the price-dividend ratio. In the case of investment, the volatility of the discounted sum

• f dividend growth is about half of that of the discounted sum
• f discount rates.

Hence it is not surprising that the price-dividend ratio varies more with the latter. In the case of hiring, the volatility of the discounted sum of dividend growth is about 2.5 to 5 times bigger than that of the discounted sum of discount rates.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Consider the standard deviation of the discounted sum of dividend growth or the discounted sum of discount rates divided by the norm of the price-dividend ratio. In the case of investment, the volatility of the discounted sum

• f dividend growth is about half of that of the discounted sum
• f discount rates.

Hence it is not surprising that the price-dividend ratio varies more with the latter. In the case of hiring, the volatility of the discounted sum of dividend growth is about 2.5 to 5 times bigger than that of the discounted sum of discount rates. Hence it is not surprising that price-dividend ratio varies more with the former.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Across all speci…cations, the estimate of the coe¢cient of the interaction term, e3, is negative.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Across all speci…cations, the estimate of the coe¢cient of the interaction term, e3, is negative. This negative point estimate implies a negative value for ghi and, therefore, a positive sign for ∂ ht

nt /∂Qk and for ∂ it kt /∂Qn

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Across all speci…cations, the estimate of the coe¢cient of the interaction term, e3, is negative. This negative point estimate implies a negative value for ghi and, therefore, a positive sign for ∂ ht

nt /∂Qk and for ∂ it kt /∂Qn

Evidently ∂ it

kt /∂Qk and ∂ ht nt /∂Qn are positive due to convexity

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Across all speci…cations, the estimate of the coe¢cient of the interaction term, e3, is negative. This negative point estimate implies a negative value for ghi and, therefore, a positive sign for ∂ ht

nt /∂Qk and for ∂ it kt /∂Qn

Evidently ∂ it

kt /∂Qk and ∂ ht nt /∂Qn are positive due to convexity

Hence, when the marginal value of investment QK rises, both the investment rate i

k and the hiring rate h n rise

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Across all speci…cations, the estimate of the coe¢cient of the interaction term, e3, is negative. This negative point estimate implies a negative value for ghi and, therefore, a positive sign for ∂ ht

nt /∂Qk and for ∂ it kt /∂Qn

Evidently ∂ it

kt /∂Qk and ∂ ht nt /∂Qn are positive due to convexity

Hence, when the marginal value of investment QK rises, both the investment rate i

k and the hiring rate h n rise

A similar argument shows that when the marginal value of hiring QN rises, both i

k and h n rise.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Put di¤erently, this result states that for given levels of investment, total and marginal costs of investment decline as hiring increases.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Put di¤erently, this result states that for given levels of investment, total and marginal costs of investment decline as hiring increases. Similarly, for given levels of hiring, total and marginal costs of hiring decline as investment increases.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Put di¤erently, this result states that for given levels of investment, total and marginal costs of investment decline as hiring increases. Similarly, for given levels of hiring, total and marginal costs of hiring decline as investment increases. This …nding is to be expected as it implies simultaneous hiring and investment.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Put di¤erently, this result states that for given levels of investment, total and marginal costs of investment decline as hiring increases. Similarly, for given levels of hiring, total and marginal costs of hiring decline as investment increases. This …nding is to be expected as it implies simultaneous hiring and investment. One interpretation of this result is that simultaneous hiring and investment is less costly than sequential hiring and investment of the same magnitude.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Put di¤erently, this result states that for given levels of investment, total and marginal costs of investment decline as hiring increases. Similarly, for given levels of hiring, total and marginal costs of hiring decline as investment increases. This …nding is to be expected as it implies simultaneous hiring and investment. One interpretation of this result is that simultaneous hiring and investment is less costly than sequential hiring and investment of the same magnitude. This may be due to the fact that simultaneous action by the …rm is less disruptive to production than sequential action.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The following distinction, however, is important.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The following distinction, however, is important. The afore-going argument favors simultaneous hiring and investment, i.e., positive levels of both ( i

k , h n > 0).

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

The following distinction, however, is important. The afore-going argument favors simultaneous hiring and investment, i.e., positive levels of both ( i

k , h n > 0).

Thus the representative …rm is hiring and investing at the same time.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

But it does not necessarily imply positive co-movement or correlation between hiring and investment (i.e. ρ( i

k , h n ) 7 0).

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

But it does not necessarily imply positive co-movement or correlation between hiring and investment (i.e. ρ( i

k , h n ) 7 0).

In other words investment and hiring take place at the same time, but it is possible to have one rise while the other declines.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

But it does not necessarily imply positive co-movement or correlation between hiring and investment (i.e. ρ( i

k , h n ) 7 0).

In other words investment and hiring take place at the same time, but it is possible to have one rise while the other declines. When will that happen? One can show that if QK rises and QN declines at the same time, then the rise in QK will lead to higher investment and higher hiring, while the fall in QN will lead to lower investment and lower hiring.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

But it does not necessarily imply positive co-movement or correlation between hiring and investment (i.e. ρ( i

k , h n ) 7 0).

In other words investment and hiring take place at the same time, but it is possible to have one rise while the other declines. When will that happen? One can show that if QK rises and QN declines at the same time, then the rise in QK will lead to higher investment and higher hiring, while the fall in QN will lead to lower investment and lower hiring. If the e¤ect of QK on investment and the e¤ect of QN on hiring are dominant (respectively), then investment would rise and hiring would fall.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

But it does not necessarily imply positive co-movement or correlation between hiring and investment (i.e. ρ( i

k , h n ) 7 0).

In other words investment and hiring take place at the same time, but it is possible to have one rise while the other declines. When will that happen? One can show that if QK rises and QN declines at the same time, then the rise in QK will lead to higher investment and higher hiring, while the fall in QN will lead to lower investment and lower hiring. If the e¤ect of QK on investment and the e¤ect of QN on hiring are dominant (respectively), then investment would rise and hiring would fall. In other words this may be a case of negative correlation between hiring and investment.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

But it does not necessarily imply positive co-movement or correlation between hiring and investment (i.e. ρ( i

k , h n ) 7 0).

In other words investment and hiring take place at the same time, but it is possible to have one rise while the other declines. When will that happen? One can show that if QK rises and QN declines at the same time, then the rise in QK will lead to higher investment and higher hiring, while the fall in QN will lead to lower investment and lower hiring. If the e¤ect of QK on investment and the e¤ect of QN on hiring are dominant (respectively), then investment would rise and hiring would fall. In other words this may be a case of negative correlation between hiring and investment. Thus, hiring and investment may move in opposite directions even when e3 is negative.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

j

• 12
• 8
• 4
• 1

1 4 8 12

i k

• 0.25
• 0.32

0.05 0.66 0.80 0.83 0.46

• 0.23
• 0.40

gi f /k

• 0.30
• 0.28

0.08 0.59 0.73 0.78 0.49

• 0.08
• 0.27

QK

• 0.43
• 0.26

0.14 0.44 0.50 0.52 0.38 0.15 0.09

h n

0.02 0.08

• 0.01
• 0.15
• 0.20
• 0.26
• 0.12
• 0.11
• 0.14

gh f /n

0.32 0.28

• 0.06
• 0.51
• 0.61
• 0.65
• 0.38

0.02 0.15 QN 0.28 0.28

• 0.02
• 0.46
• 0.56
• 0.62
• 0.39

0.02 0.19

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Investment rates are pro-cyclical, contemporaneously and within 4 quarters lags and leads.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Investment rates are pro-cyclical, contemporaneously and within 4 quarters lags and leads. Likewise are marginal costs of investment and QK .

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Investment rates are pro-cyclical, contemporaneously and within 4 quarters lags and leads. Likewise are marginal costs of investment and QK . Hiring rates are counter-cyclical, contemporaneously and in leads and within 4 quarters in lags.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Investment rates are pro-cyclical, contemporaneously and within 4 quarters lags and leads. Likewise are marginal costs of investment and QK . Hiring rates are counter-cyclical, contemporaneously and in leads and within 4 quarters in lags. Likewise are marginal costs of hiring and QN, except for the long leads where there is a small di¤erence.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Investment rates are pro-cyclical, contemporaneously and within 4 quarters lags and leads. Likewise are marginal costs of investment and QK . Hiring rates are counter-cyclical, contemporaneously and in leads and within 4 quarters in lags. Likewise are marginal costs of hiring and QN, except for the long leads where there is a small di¤erence. Investment and hiring rates follow the same pattern of cross correlations as do the marginal costs on that activity and its marginal Q.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work The Value of Adjustment Costs Decomposition of the Present Values of Investment and Hiring Co-Movement of Hiring and Investment Hiring and Investment Over the Business Cycle

Investment rates are pro-cyclical, contemporaneously and within 4 quarters lags and leads. Likewise are marginal costs of investment and QK . Hiring rates are counter-cyclical, contemporaneously and in leads and within 4 quarters in lags. Likewise are marginal costs of hiring and QN, except for the long leads where there is a small di¤erence. Investment and hiring rates follow the same pattern of cross correlations as do the marginal costs on that activity and its marginal Q. Hence the model shows that the costs and bene…ts of investment and hiring – equal at the margin – behave cyclically in the way the decision variables themselves have been shown to behave above.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Conclusions and Plan of Future Work

While hiring and investment decisions have a similar structure, the actual series behave di¤erently.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Conclusions and Plan of Future Work

While hiring and investment decisions have a similar structure, the actual series behave di¤erently. This has to do with the di¤erential relations with the relevant components of the present values driving these decisions.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Conclusions and Plan of Future Work

While hiring and investment decisions have a similar structure, the actual series behave di¤erently. This has to do with the di¤erential relations with the relevant components of the present values driving these decisions. The present value of investment is pro-cyclical while that of hiring counter-cyclical.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Conclusions and Plan of Future Work

While hiring and investment decisions have a similar structure, the actual series behave di¤erently. This has to do with the di¤erential relations with the relevant components of the present values driving these decisions. The present value of investment is pro-cyclical while that of hiring counter-cyclical. Investment seems to be driven mostly by variables that serve to discount future streams while hiring depends mostly on labor pro…tability.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Conclusions and Plan of Future Work

While hiring and investment decisions have a similar structure, the actual series behave di¤erently. This has to do with the di¤erential relations with the relevant components of the present values driving these decisions. The present value of investment is pro-cyclical while that of hiring counter-cyclical. Investment seems to be driven mostly by variables that serve to discount future streams while hiring depends mostly on labor pro…tability. Costs crucially depend on the interaction between the two activites and are convex in their rates.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Issues for future work include:

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Issues for future work include:

1

More estimation.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Issues for future work include:

1

More estimation.

2

More detailed cyclical analysis.

Eran Yashiv On The Joint Behavior of Hiring and Investment

Motivation and Background Structure of the Presentation Stylized Facts The Model Estimation The Joint Behavior of Hiring and Investment Conclusions and Plan of Future Work

Issues for future work include:

1

More estimation.

2

More detailed cyclical analysis.

3

Attempt to understand the di¤erential evolution of present values and the economic mechanisms underlying the interaction in costs.

Eran Yashiv On The Joint Behavior of Hiring and Investment