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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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  10. José Varejão & Pedro Portugal, 2003. "Employment Dynamics and the Structure of Labor Adjustment Costs," Working Papers w200312, Banco de Portugal, Economics and Research Department.
  11. Nilsen, Øivind Anti & Salvanes, Kjell G. & Schiantarelli, Fabio, 2003. "Employment Changes, the Structure of Adjustment Costs, and Plant Size," IZA Discussion Papers 920, Institute for the Study of Labor (IZA).
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  25. José Varejão & Pedro Portugal, 2004. "Matching Workers to Jobs in the Fast Lane: the Operation of Fixed-term Contracts," Working Papers w200410, Banco de Portugal, Economics and Research Department.
  26. Hamermesh, D.S. & Hassink, W.H.J. & Ours, J.C., 1994. "Job turnover and labor turnover : a taxonomy of employment dynamics," Serie Research Memoranda 0050, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
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