Dynamics of Labour and Capital Adjustment - a Comparison of Germany and the Netherlands

36 Pages Posted: 30 Jul 2004

See all articles by Michael Polder

Michael Polder

University of Maastricht

Sher Verick

International Labour Organization (ILO); IZA Institute of Labor Economics

Date Written: July 2004

Abstract

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.

Keywords: investment, labour demand, interrelation, panel data, GMM

JEL Classification: C23, E22, E24

Suggested Citation

Polder, Michael and Verick, Sher, Dynamics of Labour and Capital Adjustment - a Comparison of Germany and the Netherlands (July 2004). IZA Discussion Paper No. 1212. Available at SSRN: https://ssrn.com/abstract=571023

Michael Polder

University of Maastricht ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Sher Verick (Contact Author)

International Labour Organization (ILO) ( email )

Route des Morillons 4
Geneva, 1211
Switzerland

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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