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Identifying Adjustment Costs of Net and Gross Employment Changes

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  • Ejarque, Joao

    ()
    (University of Essex)

  • Nilsen, Øivind Anti

    ()
    (Norwegian School of Economics)

Abstract

A relatively unexplored question in dynamic labour demand regards the source of adjustment costs, whether they depend on net or gross changes in employment. We estimate a structural model of dynamic labour demand where the firm faces adjustment costs related to gross and net changes in its workforce. We focus on matching quarterly moments of hiring and of net changes in employment from a panel of establishments. The main component of adjustment costs in our panel is quadratic adjustment costs to gross changes in employment. We also estimate that adjustment costs have a large economic cost, roughly cutting the value of our establishments in half.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3703.

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Length: 40 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3703

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Keywords: employment; adjustment costs; establishment level data; structural estimation;

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References

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  1. Gourio, Francois & Kashyap, Anil K, 2007. "Investment spikes: New facts and a general equilibrium exploration," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 1-22, September.
  2. Nilsen, Øivind Anti & Salvanes, Kjell G. & Schiantarelli, Fabio, 2003. "Employment Changes, the Structure of Adjustment Costs, and Plant Size," Working Papers in Economics 11/03, University of Bergen, Department of Economics.
  3. John M. Abowd & Francis Kramarz, 1997. "The Costs of Hiring and Separations," NBER Working Papers 6110, National Bureau of Economic Research, Inc.
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  7. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, 05.
  8. Ejarque, Joao & Portugal, Pedro, 2007. "Labor Adjustment Costs in a Panel of Establishments: A Structural Approach," IZA Discussion Papers 3091, Institute for the Study of Labor (IZA).
  9. Hamermesh, Daniel S, 1995. "Labour Demand and the," Economic Journal, Royal Economic Society, vol. 105(430), pages 620-34, May.
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  18. 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).
  19. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
  20. Hamermesh, Daniel S & Pfann, Gerard A, 1996. "Turnover and the Dynamics of Labour Demand," Economica, London School of Economics and Political Science, vol. 63(251), pages 359-67, August.
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  22. Daniel S. Hamermesh, 1993. "Labor Demand and the Source of Adjustment Costs," NBER Working Papers 4394, National Bureau of Economic Research, Inc.
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  24. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Microeconomic Adjustment Hazards and Aggregate Dynamics," NBER Working Papers 4090, National Bureau of Economic Research, Inc.
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Cited by:
  1. Addison, John T. & Portugal, Pedro & Varejão, José, 2014. "Labour Demand Research: Towards a Better Match between Better Theory and Better Data," IZA Discussion Papers 8125, Institute for the Study of Labor (IZA).
  2. Blatter, Marc & Muehlemann, Samuel & Schenker, Samuel, 2012. "The costs of hiring skilled workers," European Economic Review, Elsevier, vol. 56(1), pages 20-35.
  3. Blatter, Marc & Mühlemann, Samuel & Schenker, Samuel & Wolter, Stefan C., 2012. "Hiring Costs of Skilled Workers and the Supply of Firm-Provided Training," IZA Discussion Papers 6344, Institute for the Study of Labor (IZA).

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