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The Shape of Hiring and Separation Costs

  • Kramarz, Francis



  • Michaud, Marie-Laure


    (University of Paris 1 Panthéon-Sorbonne)

In this article, we estimate the structure of costs of hiring, terminating, and retiring employees in France. We use a representative panel data set of French establishments that contains direct measures of these various costs as well as measures of entries and exits for the years 1992 and 1996. This data set results from the match of two sources: the Wage Structure Survey and the Workforce Movement Questionnaire. We show that the cost of hiring into permanent contracts is larger than the cost of hiring into fixed-term contracts. But these costs are small in comparison to the costs of retiring or terminating workers. Furthermore, collective terminations (dismissal of at least 10 workers during a 30 days period) are much more expensive than individual terminations. Hiring and separations are similar in one aspect: they entail no or little firm-specific fixed cost. Furthermore, termination and hiring costs are concave and induce firms to group their permanent hirings and separations. Retirement costs are linear. These estimates show that regulations imposed by French labor laws significantly affect the structure and the magnitude of these costs.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1170.

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Length: 39 pages
Date of creation: Jun 2004
Date of revision:
Publication status: published in: Labour Economics, 2010, 17 (1), 27-37
Handle: RePEc:iza:izadps:dp1170
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  1. P Garibaldi, 1995. "Job Flow Dynamics and Firing Restrictions," CEP Discussion Papers dp0256, Centre for Economic Performance, LSE.
  2. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  4. Stephen Machin & Alan Manning, 1998. "The Causes and Consequences of Long-Term Unemployment in Europe," CEP Discussion Papers dp0400, Centre for Economic Performance, LSE.
  5. Goux, Dominique & Maurin, Eric & Pauchet, Marianne, 2001. "Fixed-term contracts and the dynamics of labour demand," European Economic Review, Elsevier, vol. 45(3), pages 533-552, March.
  6. repec:oup:restud:v:57:y:1990:i:3:p:381-402 is not listed on IDEAS
  7. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
  8. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, vol. 79(4), pages 674-89, September.
  9. Heckman, James J & Willis, Robert J, 1977. "A Beta-logistic Model for the Analysis of Sequential Labor Force Participation by Married Women," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 27-58, February.
  10. Abowd, John M. & Kramarz, Francis, 2003. "The costs of hiring and separations," Labour Economics, Elsevier, vol. 10(5), pages 499-530, October.
  11. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
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