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Labour Demand in Germany: An Assessment of Non-Wage Labour Costs

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  • Yu-Fu Chen
  • Michael Funke

Abstract

The data indicate that non-wage labour costs in Germany have reached a record high in recent years. From 1972 to 2001, the ratio of non-wage labour costs to direct compensation in West German manufacturing industry rose from 55.6 per cent to 81.2 per cent. The topic of non-wage labour costs is 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 revenues 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.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 952.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_952

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Keywords: real options; labour demand; non-wage labour costs; hiring and firing costs; Germany;

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