Kiel Working Papers, Kiel Institute for World Economics
No 1701:
The Intensive Margin Puzzle and Labor Market Adjustment Costs
Dennis Wesselbaum
Abstract: This paper documents a puzzling fact, namely that there is
a significant 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 firing costs and relatively large hours
adjustment costs. Furthermore, the model requires those values to replicate
the U.S. business cycle statistics
Keywords: Adjustment Costs, Extensive Margin, Intensive Margin; (follow links to similar papers)
JEL-Codes: C10,; E32,; J41; (follow links to similar papers)
17 pages, May 2011
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