Dynamics of Labour and Capital Adjustment - A Comparison of Germany and the Netherlands
University of Maastricht
International Labour Organization (ILO); Institute for the Study of Labor (IZA)
IZA Discussion Paper No. 1212
In this paper we investigate the dynamic adjustment of labour and capital in German and Dutch firms. The Dutch labour market is characterised by greater flexibility in wages and work arrangements in comparison to Germany. These institutional differences imply that employment dynamics in the two countries should differ, and in particular, labour adjustment in the Netherlands should be more responsive to economic changes. On the other hand, there is unlikely to be such a divergence in capital dynamics as investment conditions are similar. Our results are consistent with this hypothesis. Furthermore, there is no evidence that labour market regulations in the two countries affect the dynamics of capital adjustment.
Number of Pages in PDF File: 36
Keywords: investment, labour demand, interrelation, panel data, GMM
JEL Classification: C23, E22, E24working papers series
Date posted: July 30, 2004
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