The shape of hiring and separation costs in France

Abstract

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. First, we show that our panel data source is able to reproduce results obtained by Abowd and Kramarz (2003) when we use the cross-section dimension. Our estimates show that collective terminations are much more expensive than individual terminations: legislation, namely the requirement to set up a “social plan” in case of collective terminations, magnifies firing costs. Collective terminations entail very large fixed costs. Termination costs are essentially linear in the number of terminated workers, with collective terminations being much more expensive. The costs of retirement are concave in the number of retired workers with a fixed cost component which is smaller than the one estimated for terminations, and quite smaller than that obtained by Abowd and Kramarz (2003). Finally, we find that hiring costs are small and seem only present when hiring on CDI; costs of hiring on short-term contracts are almost zero. Finally, the fixed (firm-specific) component of hiring costs is very small.