Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 11/03: Employment Changes, the Structure of Adjustment Costs, and Plant Size

Øivind Anti Nilsen (), Kjell G. Salvanes () and Fabio Schiantarelli ()
Additional contact information
Øivind Anti Nilsen: University of Bergen, Department of Economics, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway
Kjell G. Salvanes: Norwegian School of Economics and Business Administration, and IZA-Bonn, Postal: Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Fabio Schiantarelli: Department of Economics, Boston College, Postal: Chestnut Hill, MA 02467 USA,

Abstract: In this paper we analyze the pattern of employment adjustment using a rich panel of Norwegian plants. The data suggest that the frequency of episodes of zero net employment changes is inversely related to plant size. We develop and estimate a simple “q” model of labor demand, allowing for the presence of fixed, linear and convex components of adjustment costs. The econometric evidence supports the existence of purely fixed components, unrelated to plant size. As a result, the range of inaction is wider for smaller plants. The quadratic components of costs are also important. Finally, in most specifications both fixed and convex costs are higher for employment contractions.

Keywords: Adjustment costs; employment demand; size.

JEL-codes: C23; D21; E24

30 pages, November 2, 2003

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