Arbeitspapier

Labour-market institutions and macroeconomic shocks

Macroeconomic shocks and labour-market institutions jointly determine employment growth and economic performance. The effect of shocks depends on the nature of these intitutions and the effect of institutional change depends on the macroeconomic environment. It follows that a given set of institutions may be appropriate at certain times in some countries while not appropriate elsewhere. We derive a dynamic model of labour demand in which the effect of firing costs on labour demand depends on the macroeconomic environment: When the level of macroeconomic activity is expected to drop and/or the trend rate of productivity growth is small, a rise in firing costs affects mainly (and adversely) the hiring decision and not the firing decision. This makes firing costs harmful when they may appear to be most appropriate. The intuition behind these results is quite straightforward: When managers fear that demand may fall in the future they value the right to fire workers. It follows that by making this option more costly, firing costs reduce the value of workers with adverse consequences for hiring and firing.

Sprache
Englisch

Erschienen in
Series: IZA Discussion Papers ; No. 539

Klassifikation
Wirtschaft
Business Fluctuations; Cycles
Labor Demand
Human Capital; Skills; Occupational Choice; Labor Productivity
Producer Cooperatives; Labor Managed Firms; Employee Ownership
Thema
stochastic demand
hiring and firing
real options
firing costs
Arbeitsmarkttheorie
Schock
Arbeitsmarktflexibilisierung
Kündigung
Theorie

Ereignis
Geistige Schöpfung
(wer)
Chen, Yu-Fu
Snower, Dennis J.
Gylfi, Zoega
Ereignis
Veröffentlichung
(wer)
Institute for the Study of Labor (IZA)
(wo)
Bonn
(wann)
2002

Handle
Letzte Aktualisierung
10.03.2025, 11:44 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Chen, Yu-Fu
  • Snower, Dennis J.
  • Gylfi, Zoega
  • Institute for the Study of Labor (IZA)

Entstanden

  • 2002

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