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Employment Changes, the Structure of Adjustment Costs, and Plant Size

  • Nilsen, Øivind Anti

    ()

    (Norwegian School of Economics)

  • Salvanes, Kjell G.

    ()

    (Norwegian School of Economics)

  • Schiantarelli, Fabio

    ()

    (Boston College)

In this paper we analyze the pattern of employment adjustment using a rich panel of Norwegian plants. The data suggest that the frequency of episodes of zero net employment changes is inversely related to plant size. We develop and estimate a simple “q” model of labor demand, allowing for the presence of fixed, linear and convex components of adjustment costs. The econometric evidence supports the existence of purely fixed components, unrelated to plant size. As a result, the range of inaction is wider for smaller plants. The quadratic components of costs are also important. Finally, in most specifications both fixed and convex costs are higher for employment contractions.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 920.

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Length: 33 pages
Date of creation: Nov 2003
Date of revision:
Publication status: published in: European Economic Review, 2007, 51 (3), 577-598
Handle: RePEc:iza:izadps:dp920
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  2. Burgess, Simon & Lane, Julia & Stevens, David, 2000. "Job Flows, Worker Flows, and Churning," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 473-502, July.
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  5. Arthur Lewbel, 2000. "Endogenous Selection Or Treatment Model Estimation," Boston College Working Papers in Economics 462, Boston College Department of Economics, revised 13 Jun 2007.
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  7. Salvanes, K-G, 1996. "Market Rigidities and Labour Market Flexibility : An International Comparison," Papers 23/96, Norwegian School of Economics and Business Administration-.
  8. Jeffrey R. Campbell & Jonas D.M.Fisher, 2000. "Idiosyncratic Risk and Aggregate Employment Dynamics," NBER Working Papers 7936, National Bureau of Economic Research, Inc.
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  13. Austan Goolsbee & David B. Gross, 1997. "Estimating Adjustment Costs with Data on Heterogeneous Capital Goods," NBER Working Papers 6342, National Bureau of Economic Research, Inc.
  14. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "A Model of Labour Demand with Linear Adjustment Costs," CEPR Discussion Papers 690, C.E.P.R. Discussion Papers.
  15. Øivind Anti Nilsen & Fabio Schiantarelli, 2003. "Zeros and Lumps in Investment: Empirical Evidence on Irreversibilities and Nonconvexities," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1021-1037, November.
  16. Kramarz, Francis & Michaud, Marie-Laure, 2004. "The Shape of Hiring and Separation Costs," IZA Discussion Papers 1170, Institute for the Study of Labor (IZA).
  17. Hamermesh, Daniel S, 1992. "A General Model of Dynamic Labor Demand," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 733-37, November.
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  19. Letterie, Wilko A. & Pfann, Gerard A., 2007. "Structural identification of high and low investment regimes," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 797-819, April.
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  25. Paola Rota, 2004. "Estimating Labor Demand with Fixed Costs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 25-48, 02.
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