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The Shape of Hiring and Separation Costs

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  • Kramarz, Francis
  • Michaud, Marie-Laure

Abstract

In this article, we estimate the structure of costs of hiring, terminating, and retiring employees in France using a representative sample of French establishments. The estimates are estimated using a panel data set for two years (1992 and 1996) that matches two sources: the Wage Structure Survey (Enquête sur la Structure des Salaires) and the Workforce Questionnaire (Déclarations des Mouvements de Main-d'Oeuvre). We show that separation costs are significantly larger than hiring costs. The cost of hiring into Permanent Contracts is larger than the cost of hiring into Fixed Term Contracts and collective termination (dismissal of at least ten workers during a 30 days period) are much more expensive than individual terminations. Hiring and separations are similar in one aspect: they entail no firm-specific fixed cost. Furthermore, the termination and hiring costs are concave, and induce firms to group their hirings (into Permanent Contracts) and separations. Retirement costs are linear. Finally, legislation appears to be a major component of these costs.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3685.

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Date of creation: Jan 2003
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Handle: RePEc:cpr:ceprdp:3685

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Keywords: adjustment costs; firm behaviour;

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  1. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  2. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  3. Stephen Machin & Alan Manning, 1998. "The causes and consequences of long-term unemployment in Europe," LSE Research Online Documents on Economics 20255, London School of Economics and Political Science, LSE Library.
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  6. John M. Abowd & Francis Kramarz, 1997. "The Costs of Hiring and Separations," NBER Working Papers 6110, National Bureau of Economic Research, Inc.
  7. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  8. P Garibaldi, 1995. "Job Flow Dynamics and Firing Restrictions," CEP Discussion Papers dp0256, Centre for Economic Performance, LSE.
  9. Dominique Goux & Eric Maurin & Marianne Pauchet, 1999. "Fixed-term Contracts and the Dynamics of Labour Demand," Working Papers 99-02, Centre de Recherche en Economie et Statistique.
  10. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
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