The costs of adjusting labor: Evidence from temporally disaggregated data
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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