Labor Adjustment Costs in a Panel of Establishments: A Structural Approach
AbstractThis paper estimates a structural model of the employment decision of the firm. Our establishment level data displays an extreme degree of rigidity in that employment levels are largely constant throughout our sample. This can be due to the fact that establishments face large shocks but also large adjustment costs, or alternatively that they incur no adjustment costs but that shocks are negligible. Given our identifying assumptions, we find that rigidity is due to adjustment costs and not to the shock process. We further find that these costs reduce the value of the firm as much as 5%. Finally, small fixed costs of adjustment have a large impact on entry and exit job flows.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3091.
Length: 23 pages
Date of creation: Oct 2007
Date of revision:
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Other versions of this item:
- João Ejarque & Pedro Portugal, 2007. "Labor Adjustment Costs in a Panel of Establishments: A Structural Approach," Working Papers w200716, Banco de Portugal, Economics and Research Department.
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-10 (All new papers)
- NEP-BEC-2007-11-10 (Business Economics)
- NEP-LAB-2007-11-10 (Labour Economics)
- NEP-LTV-2007-11-10 (Unemployment, Inequality & Poverty)
- NEP-MAC-2007-11-10 (Macroeconomics)
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.:
- Olympia Bover & Pilar García-Perea & Pedro Portugal, 2000. "Labour market outliers: Lessons from Portugal and Spain," Economic Policy, CEPR & CES & MSH, vol. 15(31), pages 379-428, October.
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- José Varejão & Pedro Portugal, 2007.
"Employment Dynamics and the Structure of Labor Adjustment Costs,"
Journal of Labor Economics,
University of Chicago Press, vol. 25, pages 137-165.
- Varejão, José & Portugal, Pedro, 2006. "Employment Dynamics and the Structure of Labor Adjustment Costs," IZA Discussion Papers 1922, Institute for the Study of Labor (IZA).
- José Varejão & Pedro Portugal, 2003. "Employment Dynamics and the Structure of Labor Adjustment Costs," Working Papers w200312, Banco de Portugal, Economics and Research Department.
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NBER Working Papers
10297, National Bureau of Economic Research, Inc.
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- José Varejão & Pedro Portugal, 2004. "Matching Workers to Jobs in the Fast Lane: the Operation of Fixed-term Contracts," Working Papers w200410, Banco de Portugal, Economics and Research Department.
- Paola Rota, 2004. "Estimating Labor Demand with Fixed Costs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 25-48, 02.
- 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.
- Ejarque, Joao & Nilsen, Øivind Anti, 2008. "Identifying Adjustment Costs of Net and Gross Employment Changes," IZA Discussion Papers 3703, Institute for the Study of Labor (IZA).
- Oivind A. Nilsen & Joao M. Ejarque, 2007. "Identifying Adjustment Costs of Net and Gross Employment Changes," 2007 Meeting Papers 670, Society for Economic Dynamics.
- Yaman, F., 2011. "The costs of adjusting labor: Evidence from temporally disaggregated data," Working Papers 11/10, Department of Economics, City University London.
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