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The Intensive Margin Puzzle and Labor Market Adjustment Costs

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  • Dennis Wesselbaum

Abstract

This paper documents a puzzling fact, namely that there is a significant negative relation between employment protection legislation and the usage of the intensive margin of labor market adjustments. We then make use of a Real Business Cycle model and introduce search and matching frictions as well as adjustment costs along the extensive and the intensive labor market margins. We show that the model is able to replicate the observed pattern, if we assume low firing costs and relatively large hours adjustment costs. Furthermore, the model requires those values to replicate the U.S. business cycle statistics

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File URL: http://www.ifw-members.ifw-kiel.de/publications/the-intensive-margin-puzzle-and-labor-market-adjustment-costs/kwp-1701.pdf
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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1701.

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Length: 17 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:kie:kieliw:1701

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Related research

Keywords: Adjustment Costs; Extensive Margin; Intensive Margin;

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References

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  1. Wouter J. den Haan & Garey Ramey & Joel Watson, 1997. "Job Destruction and Propagation of Shocks," NBER Working Papers 6275, National Bureau of Economic Research, Inc.
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Cited by:
  1. Temel Taskin, 2013. "Intensive Margin and Extensive Margin Adjustments of Labor Market : Turkey versus United States," Working Papers 1339, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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