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The Shape of Hiring and Separation Costs

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Author Info
Kramarz, Francis
Michaud, Marie-Laure

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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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Related research
Keywords: adjustment costs; firm behaviour;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June. [Downloadable!] (restricted)
  2. Machin, Stephen & Manning, Alan, 1999. "The causes and consequences of longterm unemployment in Europe," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 47, pages 3085-3139 Elsevier. [Downloadable!] (restricted)
    Other versions:
  3. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 381-402, July. [Downloadable!] (restricted)
  4. Heckman, James J & Willis, Robert J, 1977. "A Beta-logistic Model for the Analysis of Sequential Labor Force Participation by Married Women," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 27-58, February. [Downloadable!] (restricted)
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  5. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March. [Downloadable!] (restricted)
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  6. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier. [Downloadable!] (restricted)
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  7. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  8. Garibaldi, Pietro, 1998. "Job flow dynamics and firing restrictions," European Economic Review, Elsevier, vol. 42(2), pages 245-275, February. [Downloadable!] (restricted)
  9. Abowd, John M. & Kramarz, Francis, 2003. "The costs of hiring and separations," Labour Economics, Elsevier, vol. 10(5), pages 499-530, October. [Downloadable!] (restricted)
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  10. Goux, Dominique & Maurin, Eric & Pauchet, Marianne, 2001. "Fixed-term contracts and the dynamics of labour demand," European Economic Review, Elsevier, vol. 45(3), pages 533-552, March. [Downloadable!] (restricted)
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  11. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, vol. 79(4), pages 674-89, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. César Alonso-Borrego & Jesús Fernández-Villaverde & José E. Galdón-Sánchez, 2004. "Evaluating Labor Market Reforms: A General Equilibrium Approach," Economics Working Papers we042307, Universidad Carlos III, Departamento de Economía. [Downloadable!]
    Other versions:
  2. Oivind A. Nilsen & Kjell G. Salvanes & Fabio Schiantarelli, 2003. "Employment Changes, the Structure of Adjustment Costs, and Plant Size," Boston College Working Papers in Economics 586, Boston College Department of Economics. [Downloadable!]
    Other versions:
  3. Alessandra Del Boca & Marzio Galeotti & Paola Rota, 2003. "Non-convexities in the Adjustment of Different Capital Inputs: A Firm-level Investigation," Working Papers 2003.35, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  4. Philip Vermeulen, 2006. "Employment stickiness in small manufacturing firms," Working Paper Series 640, European Central Bank. [Downloadable!]
    Other versions:
  5. Eric Langlais, 2008. "Le "risque judiciaire" et les licenciements en France: le point de vue de l’économie du risque," EconomiX Working Papers 2008-31, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
    Other versions:
  6. L'Haridon, Olivier & Malherbe, Franck, 2008. "Employment protection reform in search economies," Les Cahiers de Recherche 910, HEC Paris. [Downloadable!]
    Other versions:
  7. Pinoli, Sara, 2008. "Screening ex-ante or screening on-the-job? The impact of the employment contract," MPRA Paper 11429, University Library of Munich, Germany. [Downloadable!]
  8. Julio J. Rotemberg, 2006. "Cyclical Wages in a Search-and-Bargaining Model with Large Firms," NBER Working Papers 12415, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Joao Miguel Ejarque & Oivind Anti Nilsen, 2008. "Identifying Adjustment Costs of Net and Gross Employment Changes," Economics Discussion Papers 660, University of Essex, Department of Economics. [Downloadable!]
    Other versions:
  10. Pierre Cahuc & Stéphane Carcillo, 2007. "The Shortcomings of a Partial Release of Employment Protection Laws: The Case of the 2005 French Reform," IMF Working Papers 06/301, International Monetary Fund. [Downloadable!]
  11. Jian-Ping Zhou, 2006. "Reforming Employment Protection Legislation in France," IMF Working Papers 06/108, International Monetary Fund. [Downloadable!]
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