Demand for labour inputs and adjustment costs: evidence from Spanish manufacturing firms

This paper studies the structure of the adjustment costs for heterogeneous labour inputs, allowing for asymmetries and interaction effects among them. To do this, I estimate Euler equations for the demands of permanent nonproduction (white collar) and production (blue collar) employees using a sample of Spanish manufacturing firms. These equations are estimated using the subsample of observations for which adjustment is done, controlling for endogenous sample selection. The main results confirm the heterogeneity of adjustment costs for these two labour inputs, and the existence of cross-adjustment effects between them. Weak evidence of asymmetry in permanent nonproduction labour is also found.