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Employment Changes, the Structure of Adjustment Costs, and Plant Size

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  • Nilsen, Øivind Anti

    ()
    (Norwegian School of Economics)

  • Salvanes, Kjell G.

    ()
    (Norwegian School of Economics)

  • Schiantarelli, Fabio

    ()
    (Boston College)

Abstract

In this paper we analyze the pattern of employment adjustment using a rich panel of Norwegian plants. The data suggest that the frequency of episodes of zero net employment changes is inversely related to plant size. We develop and estimate a simple “q” model of labor demand, allowing for the presence of fixed, linear and convex components of adjustment costs. The econometric evidence supports the existence of purely fixed components, unrelated to plant size. As a result, the range of inaction is wider for smaller plants. The quadratic components of costs are also important. Finally, in most specifications both fixed and convex costs are higher for employment contractions.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 920.

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Length: 33 pages
Date of creation: Nov 2003
Date of revision:
Publication status: published in: European Economic Review, 2007, 51 (3), 577-598
Handle: RePEc:iza:izadps:dp920

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Keywords: size; adjustment costs; employment demand;

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References

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  3. Oivind Anti Nilsen & Fabio Schiantarelli, 1996. "Zeroes and Lumps in Investment: Empirical Evidence on Irreversibilities and Non-Convexities," Boston College Working Papers in Economics 337., Boston College Department of Economics, revised 01 Nov 2000.
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  18. Pfann, Gerald A. & Verspagen, Bart, 1989. "The structure of adjustment costs for labour in the Dutch manufacturing sector," Economics Letters, Elsevier, vol. 29(4), pages 365-371.
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