We evaluate the structure of adjustment costs in manufacturing employment using Brazilian firm data. While quadratic adjustment costs are widely used this type of costs are not compatible with the extensive within sector gross job flows. Following Varejão and Portugal (2007), we use survival analysis as an empirical tool, as previous results associate non-convex adjustment costs with inactivity time dependent exit probabilities. Our estimates using quarterly firm level data from manufacturing industries, from 1991 to 2004 soundly reject time independent exit probabilities from labor adjustment inactivity, a result that is compatible with non-convex adjustment costs.
adjustment costs; labor demand; duration models
