In this article we document the patterns of employment adjustment at the micro level. We find clear evidence of lumpy adjustment consistent with the presence of nonconvexities in the adjustment technology—inaction is pervasive, action spells are short‐lived, and extreme adjustment episodes are responsible for a nontrivial share of employment adjustment. We also find that the probability of employment adjustment increases with the duration of inaction. The skill structure of the workforce, the type of employment contract, and the proportion of low‐tenure workers, which we interpret as proxies for the magnitude of adjustment costs, all influence the probability of adjustment.

How does a typically European bargaining system, with collective bargaining and national minimum wage, coexist with low unemployment and high wage flexibility? A unique data set on workers, firms, and collective bargaining contracts in Portugal is used to analyze the determinants of both the contractual wage and the wage cushion (difference between contractual and actual wages). The results indicate that the wage cushion stretches the returns to worker and firm attributes, whereas it shrinks the returns to union power. Therefore, firm‐specific arrangements partly offset collective bargaining, granting firms certain freedom when setting wages. Contractual wages reflect trade unions' egalitarian policy.

Using special CPS data on displaced workers, this article investigates the wage consequences of job displacement in a framework that emphasizes the effects of past job duration(s) and unemployment duration(s) on postdisplacement wages. Our model also attempts to take account of the simultaneity between unemployment duration and the postdisplacement wage. It is found that duration strongly reduces subsequent earnings and that considerable overstatement of the loss in firm-specific training investments is implied by conventional routes to measuring wage losses.

McDonald, James B., and Richard J. Butler, Some Generalized Mixture Distributions with an Application to Unemployment Duration, this REVIEW 69 (May 1987), 232-240. Podgursky, Michael, and Paul Swaim, Duration of Joblessness Following Displacement, Industrial Relations 26 (Fall 1987), 213-226. Prentice, Ross L., A Log Gamma Model and Its Maximum Likelihood Estimation, Biometrika 61 (Dec. 1974), 539-544. Swaim, Paul, and Michael Podgursky, Advance Notice and Job Search: The Value of an Early Start, Journal of Human Resources 25 (Spring 1990), 148-178.

Using an accelerated failure time model, the extended generalized gamma distribution is deployed to discriminate among various special cases of that distribution. Displaced worker data from the January 1984 Current Population Survey are analyzed within a regression framework that accommodates the stochastic nature of the point of censoring associated with incomplete spells of unemployment. Not only are the regression parameters sensitive to distributional assumption but also there is evidence of different distributional shapes and hence duration dependencies in subsets of the data.

Behind similar unemployment rates in the United States and Portugal hide two very different labor markets. Unemployment duration is three times longer in Portugal than in the United States. Symmetrically, flows of workers into unemployment are three times lower in Portugal. These lower flows come in roughly equal proportions from lower job creation and destruction, and from lower worker flows given job creation and destruction. A plausible explanation is high employment protection in Portugal. High employment protection makes economies more sclerotic; but because it affects unemployment duration and worker flows in opposite directions, the effect on unemployment is ambiguous.

Do more educated workers earn higher wages partly because they have access to high-paying firms and occupations? We rely on linked employer-employee data to combine the estimation of AKM models with the decomposition of the returns to schooling. We exploit exogenous variation in education driven by changes in compulsory education. We show that education provides access to better-paying workplaces and occupations: 30 percent of the overall return to education operates through the workplace channel and 12 percent through the occupation channel. The remainder is associated exclusively with the individual. Match quality plays a modest role in the returns to education.