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Are Adjustment Costs for Labor Asymmetric? An Econometric Test on Panel Data for Italy

Listed author(s):
  • Fidel Jaramillo
  • Fabio Schiantarelli
  • Alessandro Sembenelli

In this paper we analyze the structure of adjustment costs for labor. In particular, the question whether hiring and firing costs are asymmetric is addressed. We maintain the standard assumption of quadratic adjustment costs, but allow the multiplicative coefficient to differ for the firing and hiring regime. The Euler equations for this problem can be combined into a general model that nests the one with symmetric adjustment costs. The model can be conveniently estimated and the parameter restrictions implied by symmetry easily tested. We also extend the model to allow for variable adjustment coefficients. In the empirical application we use a panel data collected by Ceris on 52 large Italian firms for the period 1958-1988. The general conclusion from the econometric testing is that the hypothesis of symmetric adjustment costs is rejected by the data. Copyright 1993 by MIT Press.
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(This abstract was borrowed from another version of this item.)

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Paper provided by Boston University - Industry Studies Programme in its series Papers with number 0021.

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Date of creation: Sep 1991
Handle: RePEc:fth:bostin:0021
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Boston University, Industry Studies Program; Department of Economics, 270 Bay Road, Boston, Massachusetts 02215.

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