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The Intensive Margin Puzzle And Labor Market Adjustment Costs

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  • Wesselbaum, Dennis

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. I 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. I show that the model is able to replicate the observed patterns of cyclicality, volatility, and especially the behavior of extensive and intensive margins if we assume low firing costs and relatively high hours adjustment costs.

Suggested Citation

  • Wesselbaum, Dennis, 2016. "The Intensive Margin Puzzle And Labor Market Adjustment Costs," Macroeconomic Dynamics, Cambridge University Press, vol. 20(6), pages 1458-1476, September.
    • Handle: RePEc:cup:macdyn:v:20:y:2016:i:06:p:1458-1476_00
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    Citations

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    Cited by:

    1. Alexander Herzog-Stein & Patrick Nüß, 2016. "Extensive versus intensive margin over the business cycle: New evidence for Germany and the United States," IMK Working Paper 163-2016, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    2. Temel Taskin, 2013. "Intensive margin and extensive margin adjustments of labor market: Turkey versus United States," Economics Bulletin, AccessEcon, vol. 33(3), pages 2307-2319.
    3. Noritaka Kudoh & Hiroaki Miyamoto, 2021. "General Equilibrium Effects and Labor Market Fluctuations," Working Papers SDES-2021-4, Kochi University of Technology, School of Economics and Management, revised May 2021.
    4. Yannic Stucki & Jacqueline Thomet, 2018. "The effects of firing costs on employment and hours per employee," Diskussionsschriften dp1820, Universitaet Bern, Departement Volkswirtschaft.
    5. Kudoh, Noritaka & Miyamoto, Hiroaki, 2023. "Do general equilibrium effects matter for labor market dynamics?," Economic Modelling, Elsevier, vol. 119(C).
    6. Armando Näf & Yannic Stucki & Jacqueline Thomet, 2022. "The Effects of Firing Costs on Labour Market Dynamics," Economica, London School of Economics and Political Science, vol. 89(354), pages 461-488, April.
    7. Daniel S. Hamermesh & Jeff Biddle, 2024. "Adjusting Labor Along The Intensive Margins," NBER Working Papers 32752, National Bureau of Economic Research, Inc.
    8. Rujin, Svetlana, 2024. "Labor market institutions and technology-induced labor adjustment along the extensive and intensive margins," Journal of Macroeconomics, Elsevier, vol. 79(C).

    More about this item

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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