Labour Demand and the
To examine the importance of the two sources of costs of adjusting labor demand, net costs (of adjusting employment) and gross costs (of hiring and firing), the author collects new sets of short monthly time series from a medium-size hospital and three manufacturing plants. Models with quadratic costs and with lumpy costs are developed and yield lower bounds on the fraction of adjustment costs that are gross. The estimates demonstrate that both types of costs affect dynamic labor demand but that gross adjustment costs especially, and the turnover that generates them, deserve much more attention. Copyright 1995 by Royal Economic Society.