Identifying Adjustment Costs of Net and Gross Employment Changes

Ejarque, João; Nilsen, Øivind Anti

doi:10.2139/ssrn.1278903

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Identifying Adjustment Costs of Net and Gross Employment Changes

IZA Discussion Paper No. 3703

40 Pages Posted: 6 Oct 2008

See all articles by João Ejarque

João Ejarque

University of Essex - Department of Economics

Øivind Anti Nilsen

Norwegian School of Economics (NHH) - Department of Economics; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Abstract

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 estimate a structural model of dynamic labour demand where the firm faces adjustment costs related to gross and net changes in its workforce. We focus on matching quarterly moments of hiring and of net changes in employment from a panel of establishments. The main component of adjustment costs in our panel is quadratic adjustment costs to gross changes in employment. We also estimate that adjustment costs have a large economic cost, roughly cutting the value of our establishments in half.

Keywords: employment, adjustment costs, establishment level data, structural estimation

JEL Classification: C33, C41, E24, J23

Suggested Citation: Suggested Citation

Gil Ejarque, João Miguel and Nilsen, Oivind Anti, Identifying Adjustment Costs of Net and Gross Employment Changes. IZA Discussion Paper No. 3703, Available at SSRN: https://ssrn.com/abstract=1278903 or http://dx.doi.org/10.2139/ssrn.1278903