Hiring Costs Research Articles

Prospective evaluation of indirect costs due to acute rotavirus gastroenteritis in Spain: the ROTACOST study

BackgroundThe effect of rotavirus in developed countries is mainly economic. This study aimed to assess the indirect costs induced by rotavirus acute gastroenteritis (RVAGE) in Spain.MethodsA prospective observational study was conducted from October 2008 to June 2009. It included 682 children up to 5 years of age with acute gastroenteritis (AGE) who attended primary care (n = 18) and emergency room/hospital settings (n = 10), covering the regions of Galicia and Asturias (North-west Spain). All non-medical expenses incurred throughout the episode were recorded in detail using personal interviews and telephone contact.ResultsAmong the 682 enrolled children, 207 (30.4%) were rotavirus positive and 170 (25%) had received at least one dose of rotavirus vaccine. The mean (standard deviation) indirect cost caused by an episode of AGE was estimated at 135.17 (182.70) Euros. Costs were 1.74-fold higher when AGE was caused by rotavirus compared with other etiologies: 192.7 (219.8) Euros vs. 111.6 (163.5) Euros (p < .001). The costs for absenteeism were the most substantial with a mean of 91.41 (134.76) Euros per family, resulting in a loss of 2.45 (3.17) days of work. In RVAGE patients, the absenteeism cost was 120.4 (154) Euros compared with 75.8 (123) for the other etiologies (p = .002), because of loss of 3.5 (3.6) vs 1.9 (2.9) days of work (p < .001). Meals costs were 2-fold-higher (48.5 (55) vs 24.3 (46) Euros, p < .001) and travel costs were 2.6-fold-higher (32 (92) vs 12.5 (21.1) Euros, p = .005) in RVAGE patients compared with those with other etiologies. There were no differences between RVAGE and other etiologies groups regarding costs of hiring of caregivers or purchase of material. Patients with RVAGE were admitted to hospital more frequently than those with other etiologies (47.8% vs 14%, p < .001).ConclusionsRotavirus generates a significant indirect economic burden. Our data should be considered in the decision-making process of the eventual inclusion of rotavirus vaccine in the national immunization schedule of well developed countries.

The costs of hiring skilled workers

This paper analyzes the structure of hiring costs for skilled workers. We use novel Swiss administrative firm-level survey data that provide direct and detailed measures of hiring costs, including recruitment and adaptation. Results show that average hiring costs range, depending on firm size, from 10 to 17 weeks of wage payments. The structure of hiring costs is convex. Marginal hiring costs increase with the number of hires and reach up to 24 weeks of wage payments. We find no evidence for a fixed cost component. Hiring costs also increase with the hiring rate (the ratio of hires and skilled workers), confirming convexity. Hiring costs generally increase with skill requirements for job applicants, and depend on macroeconomic conditions: a 1% point increase in the unemployment rate reduces average hiring costs by more than 5%.

Additional Costing Equations for Jointly-Operated Container Shipping Services to measure the Effects of Variations in Fuel and Vessel Hire Costs

This paper proposes new equations to calculate shipping costs and slot distribution when working in a shipping alliance environment. The fixed costs and capacity are shared by a predetermined ration of contributed containerships for the jointly-operated service route. The exchange rate of slot-exchange pattern depends on the relative ration of both round-voyage sailing days. Each contributing shipping company needs to estimate and account for the voyage fixed costs of each component serviced route in the agreement. This paper also simulates the effects that bunker cost and vessel hire changes have on shipping costs. The examination indicated the fixed costs are US$424 per TEU in 2010, with 63.1% attributable to bunker costs and 24.04% to containership costs. The validation shows the peak of charter hire in 2006, the fixed costs were estimated US$637 per TEU, with 63.92% attributable to containership costs and 27.53% attributable to bunker costs. (for ship of a capacity of 1,100 TEUs and 28 round trip days). The results proof the proposed equations can represent cost and are helpful for container carriers to maintain market competition.

Sorting Effects of Performance Pay

Compensation not only provides incentives to an existing manager but also affects the type of manager attracted to the firm. This paper examines the dual incentive and sorting effects of performance pay in a simple contracting model of endogenous participation. Unless the manager is highly risk averse, sorting dampens optimal pay-performance sensitivity (PPS) because PPS beyond a nominal amount transfers unnecessary (information) rent to the manager. This helps explain why empirical estimates of PPS are much lower than predictions from models of moral hazard alone. The model also predicts that sorting under asymmetric information causes the firm to turn away more candidates than would be efficient; PPS increases in the cost of hiring the manager and in the manager's outside option, but decreases in output risk, information risk, and managerial risk aversion; and the firm becomes more selective in hiring as either the manager's outside option, the cost of hiring, risk aversion, output risk, or information risk increases. This paper was accepted by Mary Barth, accounting.

Labor Market Flexibility and the Impact of the Financial Crisis

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Market Flexibility and the Impact of the Financial Crisis

The impact of the global financial crisis varies across countries. We examine whether cross-country differences in output loss and speed of recovery are affected by differences in labor market flexibility. By employing cross-country regressions and including control variables like trade and capital market integration, fiscal balance, financial vulnerability, and institutional differences, we find that lower hiring costs reduce the output loss, notably so in high-income countries. However, the duration of the crisis is longer in case of low dismissal costs, notably so in low-income countries.

Labor Market Rigidities and Informality in Colombia

Informality is at the center of the economic debate in Colombia, fueled by the high level prevalent in the country and its substantial increase during the 1990s. We study the effect of labor market rigidities, namely the increase in non-wage costs and the minimum wage on the size of the informal sector, the transition into and out of informality, and wages. Our results indicate that rises in non-wage costs and the minimum wage, increase the probability of transition into informality as well as the size of the informal sector. The analysis of these effects along the income distribution points towards strong exclusion motives for low skilled informal workers, mainly driven by labor demand adjustments in response to increasing hiring costs; and argues somehow in favor of exit motives for workers at the top of the wage distribution. Furthermore, there is strong indexation of salaries to the minimum wage, except for low skilled informal workers. In addition, firms adjust salaries in response to increasing non-wage costs for all workers within the labor force.

A multi-objective robust optimization model for multi-product multi-site aggregate production planning in a supply chain under uncertainty

Abstract Manufacturers need to satisfy consumer demands in order to compete in the real world. This requires the efficient operation of a supply chain planning. In this research we consider a supply chain including multiple suppliers, multiple manufacturers and multiple customers, addressing a multi-site, multi-period, multi-product aggregate production planning (APP) problem under uncertainty. First a new robust multi-objective mixed integer nonlinear programming model is proposed to deal with APP considering two conflicting objectives simultaneously, as well as the uncertain nature of the supply chain. Cost parameters of the supply chain and demand fluctuations are subject to uncertainty. Then the problem transformed into a multi-objective linear one. The first objective function aims to minimize total losses of supply chain including production cost, hiring, firing and training cost, raw material and end product inventory holding cost, transportation and shortage cost. The second objective function considers customer satisfaction through minimizing sum of the maximum amount of shortages among the customers’ zones in all periods. Working levels, workers productivity, overtime, subcontracting, storage capacity and lead time are also considered. Finally, the proposed model is solved as a single-objective mixed integer programming model applying the LP-metrics method. The practicability of the proposed model is demonstrated through its application in solving an APP problem in an industrial case study. The results indicate that the proposed model can provide a promising approach to fulfill an efficient production planning in a supply chain.

Management Insights

Management Insights

Severance Pay Mandates: Firing Costs, Hiring Costs, and Firm Avoidance Behaviors

The potentially adverse labor market effects of severance pay mandates are a continuing source of policy concern. In a seminal study, Lazear (1990) found that contract avoidance of severance pay firing costs was theoretically simple – a bonding scheme would do – but that empirically the labor market distortions were large. Subsequent empirical work resolved the apparent paradox – firing cost effects are modest even without firm avoidance activities. To explore why that should be so, formal measures of severance-induced firing costs and hiring costs are derived. Firing costs are, it turns out, systematically less than benefit generosity alone would imply. Moreover their interrelationship with hiring costs, often employed in empirical studies as a substitute measure, is complex, with co-movements varying in sign and magnitude across policy parameters and the economic environment. Although the analysis assumes a fixed benefit mandate, the cost measures are easily extended to assess the impact of service-linked severance benefits on age-specific employment levels. The model permits design of a cohort-neutral severance mandate – which is not a flat rate structure.

Searching for Effective Teachers with Imperfect Information

Over the past four decades, empirical researchers—many of them economists—have accumulated an impressive amount of evidence on teachers. In this paper, we ask what the existing evidence implies for how school leaders might recruit, evaluate, and retain teachers. We begin by summarizing the evidence on five key points, referring to existing work and to evidence we have accumulated from our research with the nation's two largest school districts: Los Angeles and New York City. First, teachers display considerable heterogeneity in their effects on student achievement gains. Second, estimates of teacher effectiveness based on student achievement data are noisy measures. Third, teachers' effectiveness rises rapidly in the first year or two of their teaching careers but then quickly levels out. Fourth, the primary cost of teacher turnover is not the direct cost of hiring and firing, but rather is the loss to students who will be taught by a novice teacher rather than one with several years of experience. Fifth, it is difficult to identify at the time of hire those teachers who will prove more effective. As a result, better teachers can only be identified after some evidence on their actual job performance has accumulated. We then explore what these facts imply for how principals and school districts should act, using a simple model in which schools must search for teachers using noisy signals of teacher effectiveness. The implications of our analysis are strikingly different from current practice. Rather than screening at the time of hire, the evidence on heterogeneity of teacher performance suggests a better strategy would be identifying large differences between teachers by observing the first few years of teaching performance and retaining only the highest-performing teachers.

The shocking cost of turnover in health care

Review of turnover costs at a major medical center helps health care managers gain insights about the magnitude and determinants of this managerial challenge and assess the implications for organizational effectiveness. Here, turnover includes hiring, training, and productivity loss costs. Minimum cost of turnover represented a loss of >5 percent of the total annual operating budget. Editor's Note: This article is being reprinted with permission from Health Care Management Review 29(1), 2-7.

Boosting Productivity via Innovation and Adoption of New Technologies: Any Role for Labor Market Institutions?

The authors present empirical evidence on the determinants of industry-level multifactor productivity growth. They focus ontraditional factors,including the process of technological catch up, human capital, and research and development (R&D), as well as institutional factors affecting labor adjustment costs. Their analysis is based on harmonized data for 17 manufacturing industries in 18 industrial economies over the past two decades. The disaggregated analysis reveals that the process of technological convergence takes place mainly in low-tech industries, while in high-tech industries, country leaders tend to pull ahead of the others. The link between R&D activity and productivity also depends on technological characteristics of the industries: while there is no evidence of R&D boosting productivity in low-tech industries, the effect is strong in high-tech industries, but the technology leaders tend to enjoy higher returns on R&D expenditure compared with followers. There is also evidence in the data that high labor adjustment costs (proxied by the strictness of employment protection legislation) can have a strong negative impact on productivity. In particular, when institutional settings do not allow wages or internal training to offset high hiring and firing costs, the latter reduce incentives for innovation and adoption of new technologies, and lead to lower productivity performance. Albeit drawn from the experience of industrial countries, this result may have relevant implications for many developing economies characterized by low relative wage flexibility and high labor adjustment costs.

Nominal vs real wage rigidities in New Keynesian models with hiring costs: A Bayesian evaluation

The inclusion of labor market frictions in the new Keynesian DSGE model overcomes the main drawbacks of the baseline framework. In this paper we show that this extended model, by assuming real wage rigidities, does not replicate the correct wage dynamics and the negative conditional correlation between technology shocks and employment observed in the data, known as the “productivity–employment puzzle” . We show also that these empirical limitations can be overcome by replacing real wage rigidities with nominal wage rigidities, without sacrificing other appealing features of the model. We adopt a Bayesian perspective to estimate the dynamic properties of the model with real wage rigidities and compare them with those of the model with nominal wage rigidities. We show that the evidence favors this latter construction.

Monetary persistence and the labor market: A new perspective

Abstract In this paper we propose a novel way to model the labor market in the context of a New-Keynesian general equilibrium model, incorporating labor market frictions in the form of hiring and firing costs. We show that such a model is able to replicate many important stylized facts of the business cycle. The reactions to monetary and real shocks become much more sluggish. Job creation and job destruction are negatively correlated. And the volatility of unemployment is much larger than in the standard search and matching model.

Introducing Financial Frictions and Unemployment into a Small Open Economy Model

Which are the main frictions and driving forces of business cycle dynamics in a small open economy? To answer this question we extend what is becoming the standard new Keynesian model in three dimensions. First, we incorporate frictions in the financing of the capital stock. Second, we model employment frictions in the labor market using a search and matching framework, allowing for endogenous job separations. Third, we extend the model into a small open economy setting. We estimate the model using Bayesian techniques on Swedish data. Our main results are: i) A financial shock to entrepreneurial wealth is pivotal for explaining business cycle fluctuations accounting for substantial amounts of the variance in investment and GDP. ii) The marginal efficiency of investment shock has very limited importance when we match financial market data. iii) Our model does not need any high frequency wage markup shocks to match the data. Furthermore, the labor supply shock is unimportant in explaining GDP. iv) The data indicates that there are costs of hiring, but no costs of vacancy postings per se.

Monetary Persistence and the Labor Market: A New Perspective

In this paper we propose a novel way to model the labor market in the context of a New-Keynesian general equilibrium model, incorporating labor market frictions in the form of hiring and firing costs. We show that such a model is able to replicate many important stylized facts of the business cycle. The reactions to monetary and real shocks become much more sluggish. Job creation and job destruction are negatively correlated. And the volatility of unemployment is much larger than in the standard search and matching model.

The shape of hiring and separation costs in France

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.

Labor market reform and price stability: An application to the Euro Area

Central bankers frequently suggest that labor market reform may be beneficial for inflation management. This paper investigates this topic by simulating the effects of reductions in firing costs and unemployment benefits on inflation volatility in the Euro Area, using an estimated New Keynesian model with search and matching frictions. Qualitatively, changes in labor market policies alter the volatility of inflation in response to shocks, by affecting the volatility of the three components of real marginal costs (hiring costs, firing costs and wage costs). Quantitatively, we find, however, that neither policy is likely to have an important effect on inflation volatility, due to the small contribution of hiring and firing costs to inflation dynamics.

Bayesian Estimation of an Asymmetric Employment Adjustment Model

In this paper, we analyze the dynamic labor demand structure of large Japanese firms. We propose a new dynamic model which explicitly considers the asymmetric behavior of the firms between decreasing and increasing regimes. The model modifies the ordinary partial adjustment and switching cost models. The model is a Tobit-type model; that is, the employment strategies and desired levels of labor are determined by latent variables. We estimate the model using the data augmentation algorithm, which is a Bayesian simulation method. We apply the model to the panel data constructed from financial reports of large Japanese manufacturing firms. When asymmetric adjustment costs are included in the model, we find that: i) the hiring cost does not become lower even if lay-offs and dismissals are easier, and ii) employment strategies differ among the industrial sectors even if their cost structures are similar.