The Shape of Hiring and Separation Costs

In this article, we estimate the structure of costs of hiring, terminating, and retiring employees in France. We use a representative panel data set of French establishments that contains direct measures of these various costs as well as measures of entries and exits for the years 1992 and 1996. This data set results from the match of two sources: the Wage Structure Survey and the Workforce Movement Questionnaire. We show that the cost of hiring into permanent contracts is larger than the cost of hiring into fixed-term contracts. But these costs are small in comparison to the costs of retiring or terminating workers. Furthermore, collective terminations (dismissal of at least 10 workers during a 30 days period) are much more expensive than individual terminations. Hiring and separations are similar in one aspect: they entail no or little firm-specific fixed cost. Furthermore, termination and hiring costs are concave and induce firms to group their permanent hirings and separations. Retirement costs are linear. These estimates show that regulations imposed by French labor laws significantly affect the structure and the magnitude of these costs.