A Q-model of labour demand

This paper studies the demand for labour using a Q model in which labour and capital entail adjustment costs. The estimates are based on an unbalanced panel of Spanish firms over the period 1989-96. The corresponding Q variable for labour is significant in explaining hiring rates. Its estimated coefficient varies across sectors in a way that suggests that the use of temporary labour is more widespread in economic sectors that incur smaller costs of adjusting labour due to the specific characteristics of their technology and economic activity. Interaction effects between investment and labour demands are also observed in their adjustment costs.