ABSTRACT
While the theory of the firm is central to economics, empirical studies of firm behavior have lagged behind the empirical analysis of worker or consumer behavior. The representative firm smoothly adjusting to changes in factor and output prices has only recently been subject to systematic empirical analysis. These new micro-foundations bring a re-evaluation of standard assumptions concerning the representative firm and the nature of economic adjustment. This chapter will review recent evidence on labor demand from studies of establishments over time showing the heterogeneity and transience in employment growth. The tremendous rate of job turnover at the establishment level has important implications for understanding unemployment. The potential role of public policy in mediating the effect on unemployment of this job reallocation will be also examined.
