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The Shape of Hiring and Separation Costs

  • Francis Kramarz


  • Marie-Laure Michaud


In this article, we estimate the structure of costs of hiring, terminating, and retiring employees in France. We use a representative panel data set of French establishments that contains direct measures of these various costs as well as measures of entries and exits for the years 1992 and 1996. This data set results from the match of two sources: the Wage Structure Survey and the Workforce Movement Questionnaire. We show that the cost of hiring into permanent contracts is larger than the cost of hiring into fixed-term contracts. But these costs are small in comparison to the costs of retiring or terminating workers. Furthermore, collective terminations (dismissal of at least 10 workers during a 30 days period) are much more expensive than individual terminations. Hiring and separations are similar in one aspect: they entail no or little firm-specific fixed cost. Furthermore, termination and hiring costs are concave and induce firms to group their permanent hirings and separations. Retirement costs are linear. These estimates show that regulations imposed by French labor laws significantly affect the structure and the magnitude of these costs.

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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2002-38.

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Date of creation: 2002
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Handle: RePEc:crs:wpaper:2002-38
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  1. John M. Abowd & Francis Kramarz, 1997. "The Costs of Hiring and Separations," NBER Working Papers 6110, National Bureau of Economic Research, Inc.
  2. Dominique Goux & Eric Maurin & Marianne Pauchet, 1999. "Fixed-term Contracts and the Dynamics of Labour Demand," Working Papers 99-02, Centre de Recherche en Economie et Statistique.
  3. Stephen Machin & Alan Manning, 1998. "The Causes and Consequences of Long-Term Unemployment in Europe," CEP Discussion Papers dp0400, Centre for Economic Performance, LSE.
  4. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
  5. Daniel S. Hamermesh, 1988. "Labor Demand and the Structure of Adjustment Costs," NBER Working Papers 2572, National Bureau of Economic Research, Inc.
  6. Garibaldi, Pietro, 1998. "Job flow dynamics and firing restrictions," European Economic Review, Elsevier, vol. 42(2), pages 245-275, February.
  7. Heckman, James J & Willis, Robert J, 1977. "A Beta-logistic Model for the Analysis of Sequential Labor Force Participation by Married Women," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 27-58, February.
  8. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  9. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  10. repec:bla:restud:v:57:y:1990:i:3:p:381-402 is not listed on IDEAS
  11. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
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