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Employment Changes, the Structure of Adjustment Costs, and Firms' Size

  • Nilsen, Øivind

    (University of Bergen)

  • Salvanes, Kjell G.

    (Norwegian School of Economics and Business Administration)

  • Schiantarelli, Fabio

    (Boston College)

In this paper we analyze the pattern of employment adjustment at the plant level using a rich data set for Norway. We first document the stylized facts about employment changes in small and large plants. The data reveals important differences across size classes. In particular, episodes of zero net employment changes are more frequent for smaller plants. A simple "q" model of labor demand is then developed, allowing for the presence of fixed, linear and convex components in adjustment costs. Econometric estimation supports the importance of departing from traditional models of labor demand based solely on symmetric convex adjustment costs. Fixed (or linear) components of adjustment costs are important. There is, moreover, evidence that fixed costs contain a component that are unrelated to size, in addition to a components proportional to size. As a result, the range of inaction is wider for smaller plants. Finally, the quadratic components of costs are asymmetric and, although some ambiguities exist about the nature of the asymmetry, the more general models indicate that it is more costly at the margin to contract employment than to expand it.

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Paper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number A1-4.

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Handle: RePEc:cpd:pd2002:a1-4
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  1. Hamermesh, Daniel S, 1992. "A General Model of Dynamic Labor Demand," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 733-37, November.
  2. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-84, December.
  3. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, vol. 79(4), pages 674-89, September.
  4. Mark E. Doms & Timothy Dunne, 1998. "Capital Adjustment Patterns in Manufacturing Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 409-429, April.
  5. Hamermesh, Daniel S, 1995. "Labour Demand and the," Economic Journal, Royal Economic Society, vol. 105(430), pages 620-34, May.
  6. Lucia Foster & John C. Haltiwanger & C. J. Krizan, 2001. "Aggregate Productivity Growth. Lessons from Microeconomic Evidence," NBER Chapters, in: New Developments in Productivity Analysis, pages 303-372 National Bureau of Economic Research, Inc.
  7. Jeffrey R. Campbell & Jonas D.M. Fisher, 1998. "Aggregate employment fluctuations with microeconomic asymmetries," Working Paper Series, Macroeconomic Issues WP-96-17, Federal Reserve Bank of Chicago.
  8. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August.
  9. Goux, Dominique & Maurin, Eric & Pauchet, Marianne, 2001. "Fixed-term contracts and the dynamics of labour demand," European Economic Review, Elsevier, vol. 45(3), pages 533-552, March.
  10. John M. Abowd & Patrick Corbel & Francis Kramarz, 1999. "The Entry And Exit Of Workers And The Growth Of Employment: An Analysis Of French Establishments," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 170-187, May.
  11. Hamermesh, Daniel S. & Pfann, Gerard Antonie, 1996. "Adjustment Costs in Factor Demand," CEPR Discussion Papers 1371, C.E.P.R. Discussion Papers.
  12. Abowd, John M. & Kramarz, Francis, 2003. "The costs of hiring and separations," Labour Economics, Elsevier, vol. 10(5), pages 499-530, October.
  13. Austan Goolsbee & David B. Gross, 1997. "Estimating Adjustment Costs with Data on Heterogeneous Capital Goods," NBER Working Papers 6342, National Bureau of Economic Research, Inc.
  14. Salvanes, K-G, 1996. "Market Rigidities and Labour Market Flexibility : An International Comparison," Papers 23/96, Norwegian School of Economics and Business Administration-.
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