ABSTRACT
This chapter considers how the demand for labor is affected when the authors assume that both workers and firms find it costly to make changes to their behavior when demand or supply conditions are altered. It looks at frictions on the employee side of the market, analyzing the labor market effects of employee costs when moving among employers. The chapter turns to an analysis of costs that employers bear when changing the level of employment. It analyzes how product-market monopolies affect the demand for labor, and defers the analysis of conditions under which the labor market is not competitive. The chapter also analyzes a major implication of assuming that employees can move among employers in a costless way and the evidence against this implication. It builds a model of wage and employment decisions based on the assumption that employee mobility is costly, and explores the labor market predictions of this model.
