Labor Turnover Costs and Average Labor Demand

This paper studies simple partial equilibrium models of dynamic labor demand, under certainty. Labor turnover costs may or may not decrease the firm's average labor demand, depending on the form of the revenue function, on the rates of discount and of labor attrition, and on the relative size of hiring and firing costs. With strictly positive discount and labor attrition rates, the firm's optimal policy is partially myopic, and firing costs may well increase average employment even when hiring costs reduce it.