DP3685 The Shape of Hiring and Separation Costs

Author(s): Francis Kramarz, Marie-Laure Michaud
Publication Date: January 2003
Keyword(s): adjustment costs, firm behaviour
JEL(s): D21, J30
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3685

In this article, we estimate the structure of costs of hiring, terminating, and retiring employees in France using a representative sample of French establishments. The estimates are estimated using a panel data set for two years (1992 and 1996) that matches two sources: the Wage Structure Survey (EnquĂȘte sur la Structure des Salaires) and the Workforce Questionnaire (DĂ©clarations des Mouvements de Main-d'Oeuvre). We show that separation costs are significantly larger than hiring costs. The cost of hiring into Permanent Contracts is larger than the cost of hiring into Fixed Term Contracts and collective termination (dismissal of at least ten workers during a 30 days period) are much more expensive than individual terminations. Hiring and separations are similar in one aspect: they entail no firm-specific fixed cost. Furthermore, the termination and hiring costs are concave, and induce firms to group their hirings (into Permanent Contracts) and separations. Retirement costs are linear. Finally, legislation appears to be a major component of these costs.