Journal of Development Economics Ž . Vol. 67 2002 29–54 www.elsevier.comrlocatereconbase Labor adjustment costs in a destination country: the case of Mexico Raymond Robertson a, ) , Donald H. Dutkowsky b a Department of Economics, Macalester College, 1600 Grand AÕenue, St. Paul, MN 55105-1899, USA b Department of Economics, Maxwell School of Citizenship and Public Affairs, Syracuse UniÕersity, Syracuse, NY USA Received 1 June 1999; accepted 1 May 2001 Abstract w Rodrik Rodrik, D., 1997. Has Globalization Gone Too Far? Institute for International x Economics, Washington, DC. argues that firms use the threat of moving to low-cost Ž . generally developing markets to make employment more flexible at home. Although a large literature documents significant adjustment costs in developed countries, we know little about their size and importance in developing countries that receive capital. We employ monthly Mexican data from the GATT–NAFTA period to estimate adjustment costs in Mexico. We consider adjustment costs for production and non-production workers and allow for asymmetry. While patterns of adjustment costs are similar as in developed countries, adjustment costs in Mexico are generally an order of magnitude smaller. q 2002 Elsevier Science B.V. All rights reserved. JEL classification: J32 Keywords: Dynamic labor demand; Adjustment cost; Asymmetry 1. Introduction Has AglobalizationB made labor markets more flexible? Several recent papers find that labor market flexibility in developed countries has been increasing Ž . Ž generally OECD, 1986, 1989, 1994 and in particular markets Haskel et al., . Ž . 1997; Slaughter, in press . Rodrik 1997 argues that firms use the threat of ) Corresponding author. Fax: q 1-651-696-6746. Ž . E-mail address: robertson@macalester.edu R. Robertson . 0304-3878r02r$ - see front matter q 2002 Elsevier Science B.V. All rights reserved. Ž . PII: S0304-3878 01 00176-6