Employment adjustment in German firms[Betriebliche Beschäftigungsanpassung in Deutschland]

Using a representative establishment data set for Germany, I show that, in line with the existing literature for several countries, firms’ adjustment costs for employment are characterized by a fixed and convex functional form. Furthermore, they are asymmetric with dismissal costs exceeding hiring costs. An analysis of firms’ adjustment in the period 1996–2010 also indicates that adjustment behavior has changed over time. Comparing the employment adjustment in the two observed business cycles comprising the years 1996–2003 and 2004–2010, I find that the adjustment speed was higher in the second business cycle indicating that adjustment costs have fallen in recent years.