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Dynamics of Labour and Capital Adjustment – A Comparison of Germany and the Netherlands

  • Polder, Michael

    ()

    (Maastricht University)

  • Verick, Sher

    ()

    (ILO International Labour Organization)

In this paper we investigate the dynamic adjustment of labour and capital in German and Dutch firms. The Dutch labour market is characterised by greater flexibility in wages and work arrangements in comparison to Germany. These institutional differences imply that employment dynamics in the two countries should differ, and in particular, labour adjustment in the Netherlands should be more responsive to economic changes. On the other hand, there is unlikely to be such a divergence in capital dynamics as investment conditions are similar. Our results are consistent with this hypothesis. Furthermore, there is no evidence that labour market regulations in the two countries affect the dynamics of capital adjustment.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1212.

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Length: 36 pages
Date of creation: Jul 2004
Date of revision:
Handle: RePEc:iza:izadps:dp1212
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  17. Frank Windmeijer, 2000. "A finite sample correction for the variance of linear two-step GMM estimators," IFS Working Papers W00/19, Institute for Fiscal Studies.
  18. Aguirregabiria, V., 1997. "Estimation of Dynamic Programming Models with Censored Dependent Variables," UWO Department of Economics Working Papers 9711, University of Western Ontario, Department of Economics.
  19. Alonso-Borrego, Cesar, 1998. "Demand for labour inputs and adjustment costs: evidence from Spanish manufacturing firms," Labour Economics, Elsevier, vol. 5(4), pages 475-497, December.
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