The Role of Total Factor Productivity in Adjustment Costs of Industrial Labor Market

The aim of this study is to investigate the role of total factor productivity (TFP) in adjustment costs of labor in the Kurdistan province’s manufacturing  industries.  For this purpose, TFP is measured and analysed using Divisia index in the province’s industry in 4-digit ISIC codes. Different indicators are used for calculating the adjustment cost. In this study, for estimating adjustment costs, two indicators including the effect of total reallocation and the absolute of employment changes have been used. The results of model estimation by using  pooled data method over the period 2004-2013, show that the Divisia index of TFP reduced the adjustment costs in  manufacturing  industries. Also, the results show that the  human capital has a negative and significant impact on the adjustment costs. Therefore, it is recommended that in using the production increasing policies, in order to prevent of the unintended adjustment costs,  TFP promotion is emphasized.