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Disentangling employment and wage rigidity

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  • Luigi Guiso
  • Luigi Pistaferri
  • Fabiano Schivardi

    ()
    (Research Bank of Italy)

Abstract

We use matched employer-employees data for Italy to study the joint response of wages and employment to firm-level shocks. We construct a simple dynamic general equilibrium model of labor demand and supply that allows us to identify separately firing (or internal) and mobility (or external) adjustment costs. We show that the two type of costs cannot be discriminated empirically by looking at labor or wage adjustment separately. Mobility costs have distinctive implications on wage response to firm-level employment changes but they can only be identified with worker-level information on wages. We find that both types of costs are present, but the internal component accounts for a large share of total adjustment costs. Our results are consistent with a labor market where workers are fairly mobile within locations but scarcely mobile across them

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 536.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:536

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Keywords: Adjustment costs; mobility costs; matched employer-employees data;

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References

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  1. Nilsen, Øivind Anti & Salvanes, Kjell G. & Schiantarelli, Fabio, 2003. "Employment Changes, the Structure of Adjustment Costs, and Plant Size," IZA Discussion Papers 920, Institute for the Study of Labor (IZA).
  2. Fabiano Schivardi & Roberto Torrini, 2004. "Threshold Effects and Firm Size: the Case of Firing Costs," CEP Discussion Papers dp0633, Centre for Economic Performance, LSE.
  3. Guiso, L. & Schivardi, F., 2000. "Information Spillovers and Factor Adjustment," Papers 368, Banca Italia - Servizio di Studi.
  4. Buchinsky, Moshe & Fougère, Denis & Kramarz, Francis & Tchernis, Rusty, 2005. "Interfirm Mobility, Wages, and the Returns to Seniority and Experience in the U.S," IZA Discussion Papers 1521, Institute for the Study of Labor (IZA).
  5. Donghoon Lee & Kenneth I. Wolpin, 2004. "Intersectoral Labor Mobility and the Growth of the Service Sector," PIER Working Paper Archive 04-036, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  6. Pietro Garibaldi & Lia Pacelli & Andrea Borgarello, 2003. "Employment Protection Legislation and the Size of Firms," Working Papers 247, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. Russel W. Cooper & John C. Haltiwanger & Jonathan Willis, 2004. "Dynamics of Labor Demand: Evidence from Plant-level Observations and Aggregate Implications," NBER Working Papers 10297, National Bureau of Economic Research, Inc.
  8. Alonso-Borrego, Cesar, 1998. "Demand for labour inputs and adjustment costs: evidence from Spanish manufacturing firms," Labour Economics, Elsevier, vol. 5(4), pages 475-497, December.
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