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Identifying Adjustment Costs of Net and Gross Employment Changes

  • Ejarque, Joao


    (University of Essex)

  • Nilsen, Øivind Anti


    (Norwegian School of Economics)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3703.

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Length: 40 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3703
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