Employment stickiness in small manufacturing firms

Philip Vermeulen

No 640, Working Paper Series from European Central Bank

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%. JEL Classification: E24

Keywords: employment; indirect inference; indivisibility; labor adjustment costs; sticky employment (search for similar items in EconPapers)
Date: 2006-06
Note: 327651
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Employment stickiness in small manufacturing firms (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2006640

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