Unidimensionality, asymmetry and (S,s) rules in labour demand

We analyse the conditions under which an (S,s) rule may be implemented in the case of labour demand. The (S,s) rule implies a specific ordering of choices: downward adjustment, nonadjustment and upward adjustment with the decision of inaction lying crucially in the middle. This requires an exact negative relation between the choice-specific error terms. The particular ordering of choices implied may be estimated by an ordered probit. We test the (S,s) rule nesting the ordered probit within a multinomial model with correlated error terms. The restriction to a univariate error distribution is rejected by the data.