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Identifying Adjustment Costs of Net and Gross Employment Changes

  • Joao Miguel Ejarque

    ()

  • Oivind Anti Nilsen

    ()

A relatively unexplored question in dynamic labour demand regards the source of adjustment costs, whether they depend on net or gross changes in employment. We estimate a structural model of dynamic labour demand where the firm faces adjustment costs related to gross and net changes in its workforce. We focus on matching quarterly moments of hiring and of net changes in employment from a panel of establishments. The main component of adjustment costs in our panel is quadratic adjustment costs to gross changes in employment. We also estimate that adjustment costs have a large economic cost, roughly cutting the value of our establishments in half.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 660.

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Date of creation: 16 Sep 2008
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Handle: RePEc:esx:essedp:660
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