The aim of this project is to examine the role of labor adjustment costs in explaining the employment policies of firms. These costs can take on various forms, such as mandated severance payments, legal impediments to dismissal, costs of screening and training new employees, layoff notice periods, etc. Since a significant part of the labor adjustment costs is related to various forms of labor market regulations, that has motivated a by-now extensive literature that examines the impact of job security policies on employment dynamics (see Hamermesh and Pfann (1996) for a comprehensive survey).
