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Employment Adjustment Costs and Establishment Characteristics

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  • Lucia Foster

Abstract

Microeconomic employment adjustment costs affect not only employment adjustments at the micro level but may also profoundly impact aggregate employment dynamics. This paper sheds light on the nature of these microeconomic employment adjustment costs and quantifies their impact on aggregate employment dynamics. The empirical exercises in the paper analyze the differences in employment adjustments by establishment characteristics within a hazard model framework using micro data for approximately 10,000 U.S. manufacturing plants. I find that employment adjustments vary systematically by establishment characteristics; moreover, these variations suggest that employment adjustment costs reflect the technology of the plant, the skill of its workforce, and the plant's access to capital markets. Concerning the structure of the adjustment costs, the employment adjustments have significant nonlinearities and asymmetries consistent with nonconvex, asymmetric adjustment costs. Specifically, employment adjustment behavior shows substantial inertia in the face of large employment surpluses, varied adjustment behavior for small deviations from desired employment, and (S,s)-type of bimodal adjustments in response to large employment shortages. Finally, the micro level heterogeneity, asymmetries, and nonlinearities significantly impact sectoral and aggregate employment dynamics.

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File URL: ftp://ftp2.census.gov/ces/wp/1999/CES-WP-99-15.pdf
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 99-15.

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Date of creation: Nov 1999
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Handle: RePEc:cen:wpaper:99-15

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Keywords: CES; economic; research; micro; data; microdata; chief; economist;

References

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  3. Caballero, Ricardo J & Engel, Eduardo M R A & Haltiwanger, John, 1997. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 87(1), pages 115-37, March.
  4. Timothy Dunne & John Haltiwanger & Lucia Foster, 2000. "Wage and Productivity Dispersion in U.S. Manufacturing: The Role of Computer Investment," NBER Working Papers 7465, National Bureau of Economic Research, Inc.
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  7. Nickell, Stephen, 1984. "An Investigation of the Determinants of Manufacturing Employment in the United Kingdom," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(4), pages 529-57, October.
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  16. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262540932, December.
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Cited by:
  1. C. Higson & S. Holly & P. Kattuman & S. Platis, 2004. "The Business Cycle, Macroeconomic Shocks and the Cross-Section: The Growth of UK Quoted Companies," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 71(281), pages 299-318, 05.

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