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Employee Replacement Costs

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  • Dube, Arindrajit
  • Freeman, Eric
  • Reich, Michael

Abstract

We investigate properties of employee replacement costs, using a panel survey of California businesses in 2003 and 2008. We establish that replacement costs are substantial relative to annual wages and that they are associated negatively with the use of seniority in promotion. We also find some evidence, albeit not under all specifications, that replacement costs are positively associated with establishment size, which is consistent with monopsony. Bivariate scatterplots, pooled regressions and panel-based estimates suggest a positive relationship between replacement costs and the wage. While this result is not robust, it constitutes a puzzle for hiring and separation models, such as Manning (2003). In these models, the negative wage elasticity of replacement costs is a key assumption. These results thus call for further research on employment costs models.

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Bibliographic Info

Paper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt7kc29981.

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Date of creation: 04 Mar 2010
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Handle: RePEc:cdl:indrel:qt7kc29981

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  1. Alan Manning, 2001. "A Generalised Model of Monopsony," CEP Discussion Papers dp0499, Centre for Economic Performance, LSE.
  2. Silva, José Ignacio & Toledo, Manuel, 2009. "Labor Turnover Costs And The Cyclical Behavior Of Vacancies And Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 76-96, May.
  3. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
  4. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
  5. Francis Kramarz & Marie-Laure Michaud, 2002. "The Shape of Hiring and Separation Costs," Working Papers 2002-38, Centre de Recherche en Economie et Statistique.
  6. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  7. Anderson, Patricia M, 1993. "Linear Adjustment Costs and Seasonal Labor Demand: Evidence from Retail Trade Firms," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 1015-42, November.
  8. Paul Osterman, 1994. "How common is workplace transformation and who adopts it?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(2), pages 173-188, January.
  9. Dale T. Mortensen & Eva Nagypal, 2005. "More on Unemployment and Vacancy Fluctuations," NBER Working Papers 11692, National Bureau of Economic Research, Inc.
  10. John M. Abowd & Francis Kramarz, 1997. "The Costs of Hiring and Separations," NBER Working Papers 6110, National Bureau of Economic Research, Inc.
  11. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  12. Kramarz, Francis & Michaud, Marie-Laure, 2010. "The shape of hiring and separation costs in France," Labour Economics, Elsevier, vol. 17(1), pages 27-37, January.
  13. O'Connell, Philip J. & Russell, Helen & FitzGerald, John, 2006. "Human Resources," Book Chapters, in: Morgenroth, Edgar (ed.), Ex-Ante Evaluation of the Investment Priorities for the National Development Plan 2007-2013 Economic and Social Research Institute (ESRI).
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Cited by:
  1. Reich, Michael, 2012. "Unemployment after the Great Recession: Why so High? What Can We Do?/El desempleo después de la Gran Recesión: ¿Por qué tan alto? ¿Qué podemos hacer?," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 30, pages 11-28, Abril.
  2. Reich, MIchael & Jacobs, Ken & Bernhardt, Annette, 2014. "Local Minimum Wage Laws: Impacts on Workers, Families and Businesses," Institute for Research on Labor and Employment, Working Paper Series qt9pf1225f, Institute of Industrial Relations, UC Berkeley.
  3. Manning, Alan, 2011. "Imperfect Competition in the Labor Market," Handbook of Labor Economics, Elsevier.
  4. Mühlemann, Samuel & Pfeifer, Harald, 2013. "The Structure of Hiring Costs in Germany: Evidence from Firm-Level Data," IZA Discussion Papers 7656, Institute for the Study of Labor (IZA).
  5. Hyatt, Henry R. & Spletzer, James R., 2013. "The Recent Decline in Employment Dynamics," IZA Discussion Papers 7231, Institute for the Study of Labor (IZA).
  6. Blatter, Marc & Mühlemann, Samuel & Schenker, Samuel & Wolter, Stefan C., 2012. "Hiring Costs of Skilled Workers and the Supply of Firm-Provided Training," IZA Discussion Papers 6344, Institute for the Study of Labor (IZA).

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