Manufacturing employment and adjustment cost at firm level: an analysing using microdata

Abstract

We provide an empirical analysis of the structure of adjustment in manufacturing employment using Brazilian firm data. A general dynamic labor demand model is estimated including quadratic and fixed adjustment costs as particular cases. A hypothesis test based on regression model coefficients allows differentiating which of the type adjustment cost is more appropriate. Based on micro data on manufacturing firms in Rio Grande do Sul, the results suggest that a model with both quadratic and fixed costs represent the adjustment costs for manufacturing. The long run employment wage elasticity estimates range from –0.4 to –0.8 with similar positive values for the output elasticity. The median shock adjustment length varies from one to two years.