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Dynamics of Labour and Capital Adjustment – A Comparison of Germany and the Netherlands

Michael Polder and Sher Verick ()

No 1212, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper we investigate the dynamic adjustment of labour and capital in German and Dutch firms. The Dutch labour market is characterised by greater flexibility in wages and work arrangements in comparison to Germany. These institutional differences imply that employment dynamics in the two countries should differ, and in particular, labour adjustment in the Netherlands should be more responsive to economic changes. On the other hand, there is unlikely to be such a divergence in capital dynamics as investment conditions are similar. Our results are consistent with this hypothesis. Furthermore, there is no evidence that labour market regulations in the two countries affect the dynamics of capital adjustment.

Keywords: investment; labour demand; interrelation; panel data; GMM (search for similar items in EconPapers)
JEL-codes: C23 E22 E24 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2004-07
New Economics Papers: this item is included in nep-eec and nep-lab
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