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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. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 34(3), pages 1264-1292, September.
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  14. Nilsen, Oivind A. & Salvanes, Kjell G. & Schiantarelli, Fabio, 2007. "Employment changes, the structure of adjustment costs, and plant size," European Economic Review, Elsevier, Elsevier, vol. 51(3), pages 577-598, April.
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  19. 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).
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Cited by:
  1. 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).
  2. Blatter, Marc & Muehlemann, Samuel & Schenker, Samuel, 2012. "The costs of hiring skilled workers," European Economic Review, Elsevier, Elsevier, vol. 56(1), pages 20-35.
  3. John T. Addison & Pedro Portugal & José Varejão, 2014. "Labour Demand Research: Towards a Better Match between Better Theory and Better Data," Working Papers, Banco de Portugal, Economics and Research Department w201409, Banco de Portugal, Economics and Research Department.

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