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On The Sources And Size Of Employment Adjustment Costs

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  • Lucia Foster

Abstract

Micro employment adjustment costs affect not only establishment-level dynamics but can also affect aggregate employment dynamics. The difficulties in directly observing and measuring these adjustment costs necessitate an indirect approach in order to learn more about the sources and size of these costs. This paper examines differences in employment adjustments by worker and establishment characteristics using micro-level data for approximately 11,000 U.S. manufacturing plants. Differences in the speed of adjustment within the organizing framework of the traditional partial adjustment model are used to identify the source and size of employment adjustment costs. The estimates are undertaken using three different techniques and under a variety of assumptions concerning market structure, worker heterogeneity, and degree of interrelation of inputs. The estimates show that employment adjustment speeds differ over worker and establishment characteristics in a manner that is consistent with the underlying adjustment cost stories. These differences suggest that systematic changes in the distribution of establishments over these characteristics can influence aggregate employment dynamics in response to a shock through compositional effects.

Suggested Citation

  • Lucia Foster, 1999. "On The Sources And Size Of Employment Adjustment Costs," Working Papers 99-7, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:99-7
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    References listed on IDEAS

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    Cited by:

    1. Norman V. Loayza & Luis Servén, 2010. "Business Regulation and Economic Performance," World Bank Publications - Books, The World Bank Group, number 2554, April.
    2. Lucia Foster, 1999. "Employment Adjustment Costs and Establishment Characteristics," Working Papers 99-15, Center for Economic Studies, U.S. Census Bureau.

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