Structural Estimation of Labor Adjustment Costs with Temporally Disaggregated Data

I estimate a dynamic optimization model of labor adjustment of establishments based on data that permit: specifying any desired adjustment frequency; estimating the model based on net and on gross employment flows; and allowing for simultaneous hirings and separations. The unit of observation is an establishment. Results for adjustment costs depend crucially on the model specification. Only a monthly adjustment model yields cost parameters in a reasonable range, while estimates from quarterly and annual adjustment models imply negative or excessive adjustment costs. Estimating the model on net employment changes implies hiring and separation costs of four annual median salaries, while the model on gross changes implies costs on the order of 1.7 annual median salaries