How Fast Do Banks Adjust? A Dynamic Model of Labor-Use with an Application to Swedish Banks

Authors: Kumbhakar S.C.¹; Heshmati A.²; Hjalmarsson L.³

Source: Journal of Productivity Analysis, Volume 18, Number 1, July 2002 , pp. 79-102(24)

Publisher: Springer

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Abstract:

This paper deals with a dynamic adjustment process in which adjustment of a key variable input (labor) towards its desired level is modeled in a panel data context. The partial adjustment type model is extended to make the adjustment parameter both firm- and time-specific by specifying it as a function of firm- and time-specific variables. Desired level of labor use is represented by a labor requirement function, which is a function of outputs and other firm-specific variables. The catch-up factor is defined as the ratio of actual to desired level of employment. Productivity growth is then defined in terms of a shift in the desired level of labor use and the change in the catch-up factor. Swedish banking data is used as an application of the above model.

Keywords: productivity; efficiency; catch-up factor; labor-requirement frontier; panel data

Language: English

Document Type: Regular paper

Affiliations: 1: Department of Economics, State University of New York, Binghamton, NY 13902, USA kkar@binghamton.edu 2: United Nations University (UNU), World Institute for Development Economics Research (WIDER), Katajanokanlaituri 6B, Fin-00160 Helsinki, Finland Almas.Heshmati@wider.unu.edu 3: Department of Economics, Göteborg University, SE 405 30 Göteborg, Sweden Lennart.Hjalmarsson@economics.gu.se

Publication date: 2002-07-01