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Non-Wage Labour Costs, Policy Uncertainty And Labour Demand - A Theoretical Assessment

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  • Yu-Fu Chen
  • Michael Funke

Abstract

Labour costs in various European countries have reached a record high in recent years. The topic of non-wage labour costs is therefore increasingly being discussed among and between the political parties because non-wage labour costs are likely to have major negative effects on employment. We follow the real options approach, which allows us to investigate the value to a firm of waiting to adjust labour when the firm's wage and non-wage costs are stochastic and adjustment costs are sunk. Simulation exercises show that the interaction between hiring and firing costs, non-wage labour costs and uncertainty can have important ramifications for employment dynamics. Copyright (c) Scottish Economic Society 2005.

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Bibliographic Info

Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 52 (2005)
Issue (Month): 5 (November)
Pages: 687-709

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Handle: RePEc:bla:scotjp:v:52:y:2005:i:5:p:687-709

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Cited by:
  1. Merkl, Christian & Schmitz, Tom, 2010. "Macroeconomic Volatilities and the Labor Market: First Results from the Euro Experiment," IZA Discussion Papers 4924, Institute for the Study of Labor (IZA).
  2. Babecký, Jan & Du Caju, Philip & Kosma, Theodora & Lawless, Martina & Messina, Julián & Rõõm, Tairi, 2012. "How do European firms adjust their labour costs when nominal wages are rigid?," Labour Economics, Elsevier, vol. 19(5), pages 792-801.
  3. Faia, Ester & Lechthaler, Wolfgang & Merkl, Christian, 2010. "Fiscal Multipliers and the Labour Market in the Open Economy," IZA Discussion Papers 4849, Institute for the Study of Labor (IZA).
  4. Jan Babecky & Philip Du Caju & Theodora Kosma & Martina Lawless & Julian Messina & Tairi Rõõm, 2009. "Downward nominal and real wage rigidity :survey evidence from European firms," Bank of Estonia Working Papers 2009-3, Bank of Estonia, revised 06 Dec 2009.
  5. Lechthaler, Wolfgang & Merkl, Christian & Snower, Dennis J., 2010. "Monetary Persistence and the Labor Market: A New Perspective," CEPR Discussion Papers 7650, C.E.P.R. Discussion Papers.
  6. Frank Oskamp & Dennis J. Snower, 2007. "Interactions between Employment and Training Policies," Kiel Working Papers 1389, Kiel Institute for the World Economy.
  7. Frank Oskamp & Dennis J. Snower, 2006. "The Effect of Low-Wage Subsidies on Skills and Employment," Kiel Working Papers 1292, Kiel Institute for the World Economy.
  8. Alessio J. G. Brown & Dennis Snower, 2009. "Incentives and Complementarities of Flexicurity," Kiel Working Papers 1526, Kiel Institute for the World Economy.

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