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Employment stickiness in small manufacturing firms

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  • Philip Vermeulen

    () (DG-Research ECB)

Abstract

Small firms often do not change their number of employees from year to year. This paper investigates the role of adjustment costs and indivisibility of labor in the employment stickiness of manufacturing firms with less than 75 employees. When small firms have to adjust employment in units of at least one employee, indivisibility becomes an important source of stickiness. A structural model of dynamic labor demand with adjustment costs and indivisibility is estimated using indirect inference on a panel of small French manufacturing firms. Adjustment cost are estimated to be very small. Indivisibility explains around 50\% of the stickiness of employment, adjustment costs explain the other 50\%

Suggested Citation

  • Philip Vermeulen, 2006. "Employment stickiness in small manufacturing firms," Computing in Economics and Finance 2006 144, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:144
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    References listed on IDEAS

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    Cited by:

    1. Brzoza-Brzezina, Michal & Socha, Jacek, 2006. "Downward nominal wage rigidity in Poland," MPRA Paper 843, University Library of Munich, Germany, revised Nov 2006.
    2. Oivind A. Nilsen & Joao M. Ejarque, 2007. "Identifying Adjustment Costs of Net and Gross Employment Changes," 2007 Meeting Papers 670, Society for Economic Dynamics.
    3. Jung, Sven, 2013. "Employment Adjustment in German Firms," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79696, Verein für Socialpolitik / German Economic Association.
    4. Jan Babecký & Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2010. "Downward Nominal and Real Wage Rigidity: Survey Evidence from European Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 884-910, December.
    5. Lapatinas, Athanasios, 2009. "Labour adjustment costs: Estimation of a dynamic discrete choice model using panel data for Greek manufacturing firms," Labour Economics, Elsevier, vol. 16(5), pages 521-533, October.
    6. Fahr, Stephan & Yao, Fang, 2009. "When does lumpy factor adjustment matter for aggregate dynamics?," Working Paper Series 1016, European Central Bank.
    7. Jung, Sven, 2012. "Employment adjustment in German firms," Discussion Papers 80, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.

    More about this item

    Keywords

    indivisibility; labor adjustment costs; employment; sticky employment; indirect inference; panel data;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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