published in: European Economic Review, 2007, 51 (3), 577-598
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.
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