Employment Dynamics and the Structure of Labor Adjustment Costs

35 Pages Posted: 26 Jan 2006

See all articles by José Varejão

José Varejão

Universidade do Porto - Faculdade de Economia (FEP)

Pedro Portugal

Bank of Portugal - Research Department; New University of Lisbon; IZA Institute of Labor Economics

Date Written: January 2006

Abstract

In this paper we document the patterns of employment adjustment at the micro-level. We find clear evidence of lumpy adjustment consistent with the presence of non-convexities in the adjustment technology - inaction is pervasive, action spells are short-lived, extreme adjustment episodes occur and are responsible for a non-trivial share of employment adjustment. We also find that the probability of employment adjustment increases with the duration of inaction (positive duration dependence). The skill structure of the workforce, the type of employment contract and the proportion of low tenure workers, which we interpret as proxies for the magnitude of adjustment costs, all influence the probability of adjustment.

Keywords: adjustment costs, job flows, worker flows, duration models

JEL Classification: J23, J63

Suggested Citation

Varejão, José and Portugal, Pedro, Employment Dynamics and the Structure of Labor Adjustment Costs (January 2006). IZA Discussion Paper No. 1922, Available at SSRN: https://ssrn.com/abstract=878315

José Varejão (Contact Author)

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
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Pedro Portugal

Bank of Portugal - Research Department ( email )

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Lisbon 1150-012
Portugal
+351 21 313 0000 (Phone)
+351 21 814 3841 (Fax)

New University of Lisbon

Lisbon, 1099-085
Portugal

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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