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Layoffs in a Recession and Temporary Employment Subsidies when a Recovery is ExpectedLayoffs in a Recession and Temporary Employment Subsidies when a Recovery is Expected

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  • Matthias Göcke

    (University of Giessen)

Abstract

Sunk firing costs shelter employment – and this effect is typically amplified by uncertainty due to an option value of waiting. Thus, if sunk firing costs are high, e.g. due to a employment protection legislation, and if recession related losses are with a high probability expected to be only transitory and not permanent, a relatively small employment subsidy will be sufficient to avoid layoffs by firms operating with current losses. Depending on the size of sunk hiring costs cyclical layoffs or even permanent job destruction can be avoided by short run subsidies during the beginning of a recession.

Suggested Citation

  • Matthias Göcke, 2010. "Layoffs in a Recession and Temporary Employment Subsidies when a Recovery is ExpectedLayoffs in a Recession and Temporary Employment Subsidies when a Recovery is Expected," MAGKS Papers on Economics 201029, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:201029
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    File URL: https://www.uni-marburg.de/en/fb02/research-groups/economics/macroeconomics/research/magks-joint-discussion-papers-in-economics/papers/2010-papers/29-2010_goecke.pdf
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    More about this item

    Keywords

    recession; employment; sunk firing costs; uncertainty; employment subsidy;
    All these keywords.

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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