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Employment Dynamics and the Structure of Labor Adjustment Costs

  • José Varejão
  • Pedro Portugal

In this article we document the patterns of employment adjustment at the micro level. We find clear evidence of lumpy adjustment consistent with the presence of nonconvexities in the adjustment technology—inaction is pervasive, action spells are short-lived, and extreme adjustment episodes are responsible for a nontrivial share of employment adjustment. We also find that the probability of employment adjustment increases with the duration of inaction. The skill structure of the workforce, the type of employment contract, and the proportion of low-tenure workers, which we interpret as proxies for the magnitude of adjustment costs, all influence the probability of adjustment.

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File URL: http://dx.doi.org/10.1086/509825
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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 25 (2007)
Issue (Month): ()
Pages: 137-165

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Handle: RePEc:ucp:jlabec:v:25:y:2007:p:137-165
DOI: 10.1086/509825
Contact details of provider: Web page: http://www.journals.uchicago.edu/JOLE/

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  1. Richard Blundell & Rachel Griffith & John Van Reenen, 1994. "Dynamic count data models of technological innovation," IFS Working Papers W94/10, Institute for Fiscal Studies.
  2. Mark Doms & Timothy Dunne, 1994. "Capital Adjustment Patterns in Manufacturing Plants," Working Papers 94-11, Center for Economic Studies, U.S. Census Bureau.
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  5. Øivind Anti Nilsen & Fabio Schiantarelli, 2003. "Zeros and Lumps in Investment: Empirical Evidence on Irreversibilities and Nonconvexities," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1021-1037, November.
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  7. John M. Abowd & Patrick Corbel & Francis Kramarz, 1996. "The Entry and Exit of Workers and the Growth of Employment: An Analysis of French Establishments," NBER Working Papers 5551, National Bureau of Economic Research, Inc.
  8. Christopher L. Foote, 1998. "Trend Employment Growth and the Bunching of Job Creation and Destruction," Harvard Institute of Economic Research Working Papers 1818, Harvard - Institute of Economic Research.
  9. R. Gaston Gelos & Alberto Isgut, 2001. "Fixed Capital Adjustment: Is Latin America Different?," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 717-726, November.
  10. John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
  11. Ricardo J. Caballero & Eduardo M.R.A. Engel & John Haltiwanger, 1995. "Aggregate Employment Dynamics: Building From Microeconomic Evidence," NBER Working Papers 5042, National Bureau of Economic Research, Inc.
  12. Patricia M. Anderson, 1993. "Linear Adjustment Costs and Seasonal Labor Demand: Evidence from Retail Trade Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 1015-1042.
  13. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
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