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Employment stickiness in small manufacturing firms

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  • Vermeulen, Philip

Abstract

Small firms often do not change their number of employees from year to year. This paper investigates the role of adjustment costs and indivisibility of labor in the employment stickiness of manufacturing firms with less than 75 employees. When small firms have to adjust employment in units of at least one employee, indivisibility becomes an important source of stickiness. A structural model of dynamic labor demand with adjustment costs and indivisibility is estimated using indirect inference on a panel of small French manufacturing firms. Adjustment cost are estimated to be very small. Indivisibility explains around 50% of the stickiness of employment, adjustment costs explain the other 50%. JEL Classification: E24

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0640.

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Date of creation: Jun 2006
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Handle: RePEc:ecb:ecbwps:20060640

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Keywords: Employment; indirect inference; indivisibility; labor adjustment costs; sticky employment;

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References

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Cited by:
  1. Babecký, Jan & Du Caju, Philip & Kosma, Theodora & Lawless, Martina & Messina, Julián & Rõõm, Tairi, 2009. "Downward Nominal and Real Wage Rigidity: Survey Evidence from European Firms," Working Paper Series 1105, European Central Bank.
  2. Brzoza-Brzezina, Michal & Socha, Jacek, 2006. "Downward nominal wage rigidity in Poland," MPRA Paper 843, University Library of Munich, Germany, revised Nov 2006.
  3. 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.
  4. Jung, Sven, 2013. "Employment Adjustment in German Firms," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79696, Verein für Socialpolitik / German Economic Association.
  5. Jung, Sven, 2012. "Employment adjustment in German firms," Discussion Papers 80, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  6. Lapatinas, Athanasios, 2009. "Labour adjustment costs: Estimation of a dynamic discrete choice model using panel data for Greek manufacturing firms," Labour Economics, Elsevier, vol. 16(5), pages 521-533, October.
  7. Fahr, Stephan & Yao, Fang, 2009. "When does lumpy factor adjustment matter for aggregate dynamics?," Working Paper Series 1016, European Central Bank.

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