Labor Utilization and Nonwage Labor Costs in a Disequilibrium Macro Framework

The literature on labor utilization and nonwage labor costs is extended to incorporate recent approaches to macroeconomic disequilibrium modeling based on the "smoothing by aggregation" principle. This leads to a reformulation of the basic Sneessens-Dreze type model by treating employment and working hours as separate inputs. The inclusion of nonwage labor costs serves a double purpose: first, they represent a restriction in the profit maximizing process and, second, they serve as a proxy for the fixity of labor. The results differ substantially from simulation studies that disregard the utilization of labor and the nonlinear structure of labor costs.