No. 04‐6 Working Paper Federal Reserve Bank of Boston
Effective Labor Regulation and Microeconomic Flexibility
Ricardo Caballero, Kevin N. Cowan, Eduardo M.R.A. Engel, and
This is no Paper for the Weak of Heart, and the Author is known to be mathematically challenged among other things. He thought he had detected the use of a Loop approximation for a Sliding-Scale Constant variable(that means the value of the variable could be two numeral Constants). He cannot be sure, though, because he isn't very good at this stuff.
Now for an evaluation of the Paper:
Econometrics always attempts to dismiss the variable number of average Hours worked, as does this Paper, because it throws estimates all across the board. The variance of Hours worked, nevertheless, operate as Firm response to Job Security regulation; negating the impact of the regulations. The reduction of Hours reflect the Cycle of Firm disintergration, with Creative destruction occurring at the same relevant speed and point of Firm failure. The loss of Microeconomic flexibility actually aids, rather than hinders, sound economic growth; Job security regulations forcing prior creation of Operating revenues sufficient to maintain Job creation. Low or no Job security regulation supplies unsound Firm creation, leading to wastage of Capital resources and thereby, loss of long-term sustainable economic growth.
Lack of Job security also has other negative effects upon economic growth. Higher Job turnover increase total Training Costs incurred within the Economy. Periods of Unemployment retard Household Consumption and Saving. Some unpublished Studies have established a correlation between Product Quality and Job Security. Productivity has also been shown to degrade with lack of Job specialization.
Economists often cannot differentiate between value to Business Firms, and value to economic growth. Business Firms depend on immediate Profits, and long-term gain is sacrificed for those Profits. Economic growth, on the other hand, stands upon repetitive Production levels. lgl