Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 411: How Fast Do Banks Adjust? A Dynamic Model of Labor-Use with an Application to Swedish Banks

Subal C. Kumbhakar , Almas Heshmati () and Lennart Hjalmarsson
Additional contact information
Subal C. Kumbhakar: Department of Economics, Postal: University of Texas at Austin, Austin, Texas 78712-1173, USA
Almas Heshmati: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, SE-113 83 Stockholm, SWEDEN
Lennart Hjalmarsson: Department of Economics, Postal: Göteborg University , Box 640, SE-405 30 Göteborg, SWEDEN

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 incorporate firm- and time-specific adjustment parameter. A flexible (translog) labor requirement function is used to represent the desired level of labor-use. It is specified as a function of a vector of outputs and other firm-specific variables. Labor-use inefficiency is defined as the ratio of actual to desired level of employment. Productivity growth is defined in terms of a shift in the labor requirement function. Swedish banking data is used as an application of the above model.

Keywords: Productivity; Efficiency; Convergence; Labor-Use; Panel Data; Banking Industry

JEL-codes: C23; C51; G21

27 pages, First version: November 8, 2000. Revised: November 2001. Earlier revisions: November 2001.

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