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© 1997 Oxford University Press

research-article

LABOUR MARKET FLEXIBILITY AND EMPLOYMENT ADJUSTMENT: MICRO EVIDENCE FROM UK ESTABLISHMENTS

JONATHAN HASKEL*, BARBARA KERSLEY{dagger}, and CHRISTOPHER MARTIN{dagger}

*Department of Economics, Queen Mary and Westfield College Mile End Road, London E1 4NS, and CEPR
{dagger}Department of Economics QMW

In this paper we study how firms react to demand shocks, examining how different aspects of flexibility shape their responses. Our main findings are: (i) very few firms choose to adjust price in response to a demand shock; (ii) firms with more flexibility are more likely to respond to demand shocks by adjusting employment and hours. Our results provide a microeconomic explanation for recent macroeconomic evidence that labour input has become more closely aligned to the business cycle.


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