| Abstract: | This paper proposes a model of labour demand based on a bankruptcy constrained firm. This implies two different regimes for the process generating labour demand: one when this bankruptcy constraint is not binding and one when it is. The same applies to unemployment. This unemployment model is applied to U.S. quarterly data, where account is being taken of the two regimes by dummy variables based on the turning points of the NBER business indicator. It appears that the variables affecting U.S. unemployment in the respective regimes are also the ones predicted by our theoretical model. |
