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Downsizing the Labor Force by Low and High Proïfit Firms - An Experimental Analysis1

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  • Werner Güth

    ()
    (Max Planck Institute of Economics, Jena)

  • Christian Paul

    ()
    (Institut für Wirtschaftstheorie und Operations Research, University of Karlsruhe)

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    Abstract

    One may hope to capture the behavioral and emotional effects of downsizing the labor force in rather abstract settings as an ultimatum game (see Fischer et al. (2008)), or try to explore downsizing in its more natural principal-agent scenario with a labor market background. We pursue the latter approach and test experimentally whether downsizing occurs whenever (game) theoretically predicted and whether effort reactions question its proïfitability. Our main findings are that downsizing seems to happen less often than predicted and that its frequency does not depend on whether, theoretically, its gains are rather large or small. Interestingly, we also find strong evidence that piece-rate offers are used in a suboptimal way.

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    Bibliographic Info

    Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2008-087.

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    Date of creation: 12 Nov 2008
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    Handle: RePEc:jrp:jrpwrp:2008-087

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    Keywords: downsizing; experimental economics; principal-agent model; labor economics;

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