The Effect of Labor Supply Shortages on Asymmetric Cost Behavior

Kira Hoffmann

Research output: Contribution to conferencePaperResearch


This study examines the effect of shortages in labor supply on asymmetric cost behavior. Building on the labor demand literature, it is argued that labor supply shortages increase adjustment costs for hiring new employees. Consistent with this explanation, results provide evidence that companies facing restrictions in labor supply increase costs (and resources) less than companies operating with sufficient access to additional personnel. This leads to a more symmetrical cost behavior for increasing activity compared to decreasing activity. Additional analyses show that shortages in labor supply induce firms to increase selling prices but also to temporarily expect more effort from their current employees. The effect decreases with the length of the labor supply shock and is more
pronounced for companies located in less populated regions. Results are robust to alternative explanations, such as prior period slack creation or pessimistic managerial expectations with respect to future demand.
Original languageEnglish
Publication date2016
Number of pages48
Publication statusPublished - 2016
EventManufacturing Accounting Research Conference - Lissabon, Portugal
Duration: 15 Jun 201617 Jun 2016


ConferenceManufacturing Accounting Research Conference
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