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Identifying Adjustment Costs of Net and Gross Employment Changes

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  • Ejarque, João Miguel
  • Nilsen, Øivind Anti

Abstract

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.

Suggested Citation

  • Ejarque, João Miguel & Nilsen, Øivind Anti, 2008. "Identifying Adjustment Costs of Net and Gross Employment Changes," Economics Discussion Papers 8924, University of Essex, Department of Economics.
  • Handle: RePEc:esx:essedp:8924
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    Cited by:

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    2. Amundsen, Alexander, 2023. "Interaction effects in the adjustment cost function of firms," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    3. Marc Blatter & Samuel Muehlemann & Samuel Schenker & Stefan C. Wolter, 2016. "Hiring costs for skilled workers and the supply of firm-provided training," Oxford Economic Papers, Oxford University Press, vol. 68(1), pages 238-257.
    4. Emmanuel Dhyne & Catherine Fuss & Claude Mathieu, 2015. "Labour Demand Adjustment: Does Foreign Ownership Matter?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(6), pages 854-871, December.
    5. Addison, John T. & Portugal, Pedro & Varejão, José, 2014. "Labor demand research: Toward a better match between better theory and better data," Labour Economics, Elsevier, vol. 30(C), pages 4-11.
    6. Blatter, Marc & Muehlemann, Samuel & Schenker, Samuel, 2012. "The costs of hiring skilled workers," European Economic Review, Elsevier, vol. 56(1), pages 20-35.
    7. Fan, Haichao & Lin, Faqin & Lin, Shu, 2020. "The hidden cost of trade liberalization: Input tariff shocks and worker health in China," Journal of International Economics, Elsevier, vol. 126(C).

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    More about this item

    Keywords

    Employment; adjustment costs; establishment level data; structural estimation;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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