Dynamic employment adjustment of firms

The point of departure of the analysis of dynamic labour demand is that hiring and firing costs often are significant and hence, employers are not likely to immediately adjust their workforce (or use of working hours) to changes in the demand for their products and services, or in expectations thereof. Thus, the magnitude and structure of hiring/firing costs affect the adjustment of labour demand. In the aggregate, by smoothening variations. At the employer level, however, variations may be lumpy. Accounting for the costly nature of adjustments also has implications for employment protection policy.