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The costs of adjusting labor: Evidence from temporally disaggregated data

  • Yaman, F.
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    I estimate the costs for establishments of hires and separations using a dynamic labor demand framework and matched employer-employee data from Germany, which records the exact dates of start and end of an employment spell. I estimate adjustment costs under different assumptions of adjustment frequencies. Under the assumption that establishments revise their labor demand every month, GMM estimates suggest hiring costs per employee of approximately 5,000 Euros, and costs of separations of 1,000 Euros. Hiring costs vary considerably between skilled (8,000 to 28,000 Euros per hire) and unskilled (4,000 to 8,000 Euros) labor. Spatial aggregation (large establishments) is associated with lower cost estimates, and only monthly adjustment frequencies yield estimates consistent with theoretical predictions.

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    Paper provided by Department of Economics, City University London in its series Working Papers with number 11/10.

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    Date of creation: 2011
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    Handle: RePEc:cty:dpaper:11/10
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    Web page: http://www.city.ac.uk

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    1. João Ejarque & Pedro Portugal, 2007. "Labor Adjustment Costs in a Panel of Establishments: A Structural Approach," Working Papers w200716, Banco de Portugal, Economics and Research Department.
    2. Russell Cooper & John Haltiwanger & Jonathan L. Willis, 2003. "Dynamics of labor demand : evidence from plant-level observations and aggregate implications," Research Working Paper RWP 03-12, Federal Reserve Bank of Kansas City.
    3. Asphjell, Magne Krogstad & Letterie, Wilko & Nilsen, Øivind Anti & Pfann, Gerard A., 2010. "Sequentiality versus Simultaneity: Interrelated Factor Demand," IZA Discussion Papers 5359, Institute for the Study of Labor (IZA).
    4. Addison, John T & Schnabel, Claus & Wagner, Joachim, 2001. "Work Councils in Germany: Their Effects on Establishment Performance," Oxford Economic Papers, Oxford University Press, vol. 53(4), pages 659-94, October.
    5. Berndt, Ernst R. & Christensen, Laurits R., 1973. "The translog function and the substitution of equipment, structures, and labor in U.S. manufacturing 1929-68," Journal of Econometrics, Elsevier, vol. 1(1), pages 81-113, March.
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