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Employee Replacement Costs

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  • Dube, Arindrajit
  • Freeman, Eric
  • Reich, Michael

Abstract

We investigate properties of employee replacement costs, using a panel survey of California businesses in 2003 and 2008. We establish that replacement costs are substantial relative to annual wages and that they are associated negatively with the use of seniority in promotion. We also find some evidence, albeit not under all specifications, that replacement costs are positively associated with establishment size, which is consistent with monopsony. Bivariate scatterplots, pooled regressions and panel-based estimates suggest a positive relationship between replacement costs and the wage. While this result is not robust, it constitutes a puzzle for hiring and separation models, such as Manning (2003). In these models, the negative wage elasticity of replacement costs is a key assumption. These results thus call for further research on employment costs models.

Suggested Citation

  • Dube, Arindrajit & Freeman, Eric & Reich, Michael, 2010. "Employee Replacement Costs," Institute for Research on Labor and Employment, Working Paper Series qt7kc29981, Institute of Industrial Relations, UC Berkeley.
  • Handle: RePEc:cdl:indrel:qt7kc29981
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    5. Silva, José Ignacio & Toledo, Manuel, 2009. "Labor Turnover Costs And The Cyclical Behavior Of Vacancies And Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 76-96, May.
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    12. Alan Manning, 2006. "A Generalised Model of Monopsony," Economic Journal, Royal Economic Society, vol. 116(508), pages 84-100, January.
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    Cited by:

    1. Henry Hyatt & James Spletzer, 2013. "The recent decline in employment dynamics," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-21, December.
    2. Samuel Muehlemann & Harald Pfeifer, 2016. "The Structure of Hiring Costs in Germany: Evidence from Firm-Level Data," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 55(2), pages 193-218, April.
    3. Manning, Alan, 2011. "Imperfect Competition in the Labor Market," Handbook of Labor Economics, Elsevier.
    4. Marc Blatter & Samuel Muehlemann & Samuel Schenker & Stefan C. Wolter, 2016. "Hiring costs for skilled workers and the supply of firm-provided training," Oxford Economic Papers, Oxford University Press, vol. 68(1), pages 238-257.
    5. Ronald Leung & Marco Stampini & Desire Vencatachellum, 2014. "Does Human Capital Protect Workers against Exogenous Shocks? Evidence from Panel Data on South Africa during the 2008-2009 Crisis," South African Journal of Economics, Economic Society of South Africa, vol. 82(1), pages 99-116, March.
    6. Reich, Michael, 2012. "Unemployment after the Great Recession: Why so High? What Can We Do?/El desempleo después de la Gran Recesión: ¿Por qué tan alto? ¿Qué podemos hacer?," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 30, pages 11-28, Abril.
    7. Reich, MIchael & Jacobs, Ken & Bernhardt, Annette, 2014. "Local Minimum Wage Laws: Impacts on Workers, Families and Businesses," Institute for Research on Labor and Employment, Working Paper Series qt9pf1225f, Institute of Industrial Relations, UC Berkeley.

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