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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.

Suggested Citation

  • Oivind A. Nilsen & Joao M. Ejarque, 2007. "Identifying Adjustment Costs of Net and Gross Employment Changes," 2007 Meeting Papers 670, Society for Economic Dynamics.
  • Handle: RePEc:red:sed007:670

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    References listed on IDEAS

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    Cited by:

    1. Marc Blatter & Samuel Muehlemann & Samuel Schenker & Stefan C. Wolter, 2016. "Hiring costs for skilled workers and the supply of firm-provided training," Oxford Economic Papers, Oxford University Press, vol. 68(1), pages 238-257.
    2. Emmanuel Dhyne & Catherine Fuss & Claude Mathieu, 2015. "Labour Demand Adjustment: Does Foreign Ownership Matter?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(6), pages 854-871, December.
    3. Addison, John T. & Portugal, Pedro & Varejão, José, 2014. "Labor demand research: Toward a better match between better theory and better data," Labour Economics, Elsevier, vol. 30(C), pages 4-11.
    4. Blatter, Marc & Muehlemann, Samuel & Schenker, Samuel, 2012. "The costs of hiring skilled workers," European Economic Review, Elsevier, vol. 56(1), pages 20-35.

    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand


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