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Labor Demand Dynamics And the Structure of Adjustment Costs: Evidence From French Firms


  • Nicolas Roys

    () (Economics CES - University of Paris I)


This paper studies the dynamics of labor demand at the firm level. Recent studies emphasize the importance of non-convex components in the structure of hiring and firing costs in the form of either fixed or linear adjustment costs. Building from Cooper al. (2005) model and Rota (2004) econometric strategy, we estimate a structural model using Aguirregabiria and Mira (2002) nested pseudo likelihood algorithm on a panel of 50 000 French firms for the period 1994-2000. Our results imply that it is important to depart from the standard specification of convex and symmetric adjustment costs: French firms do not continually adjust their employment level but when they do it, they fully resorb the accumulated disequilibrium without smoothing. Although some ambiguities exist about the nature of the asymmetry and contrary to existing empirical evidence, our results indicate that it is more costly to expand employment than to contract it. And the fixed part is more important than the kinked one. To us it indicates that adjustment costs are mainly implicit and that attempt to directly measure them is is probably time wasted

Suggested Citation

  • Nicolas Roys, 2006. "Labor Demand Dynamics And the Structure of Adjustment Costs: Evidence From French Firms," Computing in Economics and Finance 2006 424, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:424

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    More about this item


    labor demand; adjustment costs; dynamic programming; structural econometrics; discrete choice;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • 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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