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Identifying Adjustment Costs of Net and Gross Employment Changes

  • Oivind A. Nilsen

    (Norwegian School of Economics and IZA)

  • Joao M. Ejarque

    (University of Essex)

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 simulate a structural model of dynamic labor demand where the firm faces adjustment costs related to gross and net changes in its workforce. These simulations allow us to select several moments of hiring and of net changes in employment that provide identification for our estimation with actual data. We then estimate adjustment costs in a panel of establishments on quarterly data. The main component of adjustment costs in our panel is quadratic adjustment costs to gross changes in employment. We find no significant evidence of fixed costs in our data.

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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 670.

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Date of creation: 2007
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Handle: RePEc:red:sed007:670
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