The Intensive Margin Puzzle and Labor Market Adjustment Costs

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in May 25, 2011Abstract This paper documents a puzzling fact, namely that there is a signi…cant negative relation between employment protection legislation and the usage of the intensive margin of labor market adjustments. We then make use of a Real Business Cycle model and introduce search and matching frictions as well as adjustment costs along the extensive and the intensive labor market margins. We show that the model is able to replicate the observed pattern, if we assume low …ring costs and relatively large hours adjustment costs. Furthermore, the model requires those values to replicate the U.S. business cycle statistics.

The Effects of Firing Costs on Labour Market Dynamics

“…Using official labour market data from national authorities, he finds that, puzzlingly, stricter EPL is associated with smaller rather than larger fluctuations of the intensive relative to extensive margin of labour. Hence the model mechanism of Wesselbaum (2016) is quite different to ours. As pointed out by Ohanian and Raffo (2012), using official labour market data for cross-country comparison may be problematic due to differences in definition and compilation of the statistics.…”

“…Since we focus on the substitution effect of firing costs—that is, how firing costs affect the fluctuations of labour market aggregates relative to each other—the closest precursors of our work are Garibaldi (1998), Llosa et al . (2014) and Wesselbaum (2016). Garibaldi (1998) finds evidence similar to ours on the relationship between EPL and the fluctuations of job‐creation relative to job‐destruction flows.…”

“…In general, these contributions focus on a subset of the labour market aggregates that we consider. For instance, Bentolila and Bertola (1990), Bertola (1990) and Veracierto (2008) shed light on the impact of firing costs on the dynamic behaviour of aggregate employment; Garibaldi (1998) and Messina and Vallanti (2007) focus on the cyclicality of gross job flows; and Llosa et al (2014) and Wesselbaum (2016) study fluctuations of the intensive relative to extensive margin of labour supply.…”

“…This allows us to also study the impact on gross job flows and the Beveridge curve—aspects of the labour market that their RBC model abstracts from. In this respect, Wesselbaum (2016) is more closely related to our work as he also uses a search and matching model. However, Wesselbaum (2016) is motivated by opposite stylized facts.…”

“…In this respect, Wesselbaum (2016) is more closely related to our work as he also uses a search and matching model. However, Wesselbaum (2016) is motivated by opposite stylized facts. Using official labour market data from national authorities, he finds that, puzzlingly, stricter EPL is associated with smaller rather than larger fluctuations of the intensive relative to extensive margin of labour.…”