The costs of hiring and separations

In this article, we use the structure of French labor law and the data from three linked sources to estimate the costs of hiring, separation and retirement of employees for a representative sample of French establishments matched with a representative sample of their employees. The estimates are computed using data from the Wage Structure Survey (ESS), the Workforce Movement Questionnaire (DMMO), and the Occupational Structure Survey (ESE). We show that the estimated separation costs are increasing and mildly concave functions of the number of exits and include a very large fixed component. Estimated hiring costs are much lower and those associated with short-term contracts are effectively zero. Profit maximizing French firms should adjust employment primarily through hiring changes. (C) 2003 Elsevier Science B.V All rights reserved.