Working Paper: CEPR ID: DP5787
Authors: Luigi Guiso; Luigi Pistaferri; Fabiano Schivardi
Abstract: This paper studies the costs of adjusting employment, distinguishing between firms' firing and workers' mobility costs. We construct a simple dynamic general equilibrium model of labour demand and supply and show that only the joint response of employment and wages to firm level shocks can discriminate between the two types of costs. We use matched employer-employees data for Italy to estimate the model and find that both types of costs are present, that they are sizeable (in the range of 19,000 euros in total) and that firing costs account for almost 90 percent of total adjustment costs.
Keywords: adjustment costs; matched employer-employee data; mobility costs
JEL Codes: C33; D21; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firing costs (J32) | total adjustment costs (J30) |
| mobility costs (J62) | total adjustment costs (J30) |
| internal costs (D23) | total adjustment costs (J30) |
| joint response of wages and employment (J39) | understanding labor market frictions (J69) |
| idiosyncratic shocks (D89) | wage changes (J31) |
| mobility costs (J62) | wage changes (J31) |
| internal costs (D23) | mobility costs (J62) |
| firing costs (J32) | mobility costs (J62) |