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Labour Adjustment: Disentangling Firing and Mobility Costs

  • Guiso, Luigi
  • Pistaferri, Luigi
  • Schivardi, Fabiano

This paper studies the costs of adjusting employment, distinguishing between firms' firing and workers' mobility costs. We construct a simple dynamic general equilibrium model of labour demand and supply and show that only the joint response of employment and wages to firm level shocks can discriminate between the two types of costs. We use matched employer-employees data for Italy to estimate the model and find that both types of costs are present, that they are sizeable (in the range of 19,000 euros in total) and that firing costs account for almost 90 percent of total adjustment costs.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5787.

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Date of creation: Aug 2006
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Handle: RePEc:cpr:ceprdp:5787
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  17. Schivardi, Fabiano & Torrini, Roberto, 2005. "Identifying the Effects of Firing Restrictions Through Size-Contingent Differences in Regulation," CEPR Discussion Papers 5303, C.E.P.R. Discussion Papers.
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