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Employment stickiness in small manufacturing firms

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  • Philip Vermeulen

    ()
    (DG-Research ECB)

Abstract

Small firms often do not change their number of employees from year to year. This paper investigates the role of adjustment costs and indivisibility of labor in the employment stickiness of manufacturing firms with less than 75 employees. When small firms have to adjust employment in units of at least one employee, indivisibility becomes an important source of stickiness. A structural model of dynamic labor demand with adjustment costs and indivisibility is estimated using indirect inference on a panel of small French manufacturing firms. Adjustment cost are estimated to be very small. Indivisibility explains around 50\% of the stickiness of employment, adjustment costs explain the other 50\%

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 144.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:144

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Keywords: indivisibility; labor adjustment costs; employment; sticky employment; indirect inference; panel data;

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References

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Cited by:
  1. Jung, Sven, 2013. "Employment Adjustment in German Firms," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79696, Verein für Socialpolitik / German Economic Association.
  2. Lawless, Martina & Babecký, Jan & Du Caju, Philip & Kosma, Theodora & Messina, Julián & Rõõm, Tairi, 2009. "Downward Nominal and Real Wage Rigidity:Survey Evidence from European Firms," Research Technical Papers 11/RT/09, Central Bank of Ireland.
  3. Brzoza-Brzezina, Michal & Socha, Jacek, 2006. "Downward nominal wage rigidity in Poland," MPRA Paper 843, University Library of Munich, Germany, revised Nov 2006.
  4. Ejarque, Joao & Nilsen, Øivind Anti, 2008. "Identifying Adjustment Costs of Net and Gross Employment Changes," IZA Discussion Papers 3703, Institute for the Study of Labor (IZA).
  5. Fahr, Stephan & Yao, Fang, 2009. "When does lumpy factor adjustment matter for aggregate dynamics?," Working Paper Series 1016, European Central Bank.
  6. Jung, Sven, 2012. "Employment adjustment in German firms," Discussion Papers 80, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  7. Lapatinas, Athanasios, 2009. "Labour adjustment costs: Estimation of a dynamic discrete choice model using panel data for Greek manufacturing firms," Labour Economics, Elsevier, vol. 16(5), pages 521-533, October.

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