Labor Adjustment Costs in a Panel of Establishments: A Structural Approach

João Ejarque (jme@dreammodel.dk) and Pedro Portugal (pportugal@bportugal.pt)

No 3091, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper estimates a structural model of the employment decision of the firm. Our establishment level data displays an extreme degree of rigidity in that employment levels are largely constant throughout our sample. This can be due to the fact that establishments face large shocks but also large adjustment costs, or alternatively that they incur no adjustment costs but that shocks are negligible. Given our identifying assumptions, we find that rigidity is due to adjustment costs and not to the shock process. We further find that these costs reduce the value of the firm as much as 5%. Finally, small fixed costs of adjustment have a large impact on entry and exit job flows.

Keywords: adjustment costs; employment; rigidity (search for similar items in EconPapers)
JEL-codes: C33 C41 E24 J23 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2007-10
New Economics Papers: this item is included in nep-bec, nep-lab, nep-ltv and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Labor Adjustment Costs in a Panel of Establishments: A Structural Approach (2007)
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