This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Can Risk Aversion in Firms Reduce Unemployment Persistence?

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Ali Choudhary (University of Surrey)
Paul Levine (University of Surrey)

Additional information is available for the following registered author(s):

Abstract

This paper contributes to the growing literature that attempts to explain unemployment persistence. We show that when the economy is struck by a negative transitory (or permanent) demand or supply shock, firms can find their way back quicker to the pre-shock (or new) employment levels if they are risk-averse. The reason is that risk aversion in firms creates a self-adjusting mechanism whereby cautious firms adjust hiring and wage-setting decisions to try to regain the pre-shock employment levels and minimize fluctuations in profits. Therefore, perhaps surprisingly, risk aversion in firms is seen as a stabilizing macroeconomic force that reduces unemployment inertia.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.econ.surrey.ac.uk/discussion_papers/2004/DP07-04.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Department of Economics, University of Surrey in its series Department of Economics Discussion Papers with number 0704.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 32 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:sur:surrec:0704

Contact details of provider:
Postal: Guildford, Surrey GU2 5XH
Phone: (01483) 259380
Fax: (01483) 259548
Email:
Web page: http://www.econ.surrey.ac.uk
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Alex Mandilaras).

Related research
Keywords: Unemployment; Persistence; Risk Aversion;

Other versions of this item:

Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Olivier J. Blanchard & Lawrence H. Summers, 1987. "Hysteresis and the European Unemployment Problem," NBER Working Papers 1950, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June. [Downloadable!] (restricted)
  3. Phelps, Edmund S & Zoega, Gylfi, 1998. "Natural-Rate Theory and OECD Unemployment," Economic Journal, Royal Economic Society, vol. 108(448), pages 782-801, May. [Downloadable!] (restricted)
  4. MacCrimmon, Kenneth R & Wehrung, Donald A, 1984. "The Risk In-Basket," Journal of Business, University of Chicago Press, vol. 57(3), pages 367-87, July. [Downloadable!] (restricted)
  5. Hoon, Hian Teck & Phelps, Edmund S, 1992. "Macroeconomic Shocks in a Dynamized Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 82(4), pages 889-900, September. [Downloadable!] (restricted)
  6. Orszag, J. Michael & Zoega, Gylfi, 1996. "Wages ahead of demand," Economics Letters, Elsevier, vol. 53(3), pages 341-347, December. [Downloadable!] (restricted)
  7. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-25, March. [Downloadable!] (restricted)
  8. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 381-402, July. [Downloadable!] (restricted)
  9. Henry, Brian & Karanassou, Marika & Snower, Dennis J, 2000. "Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 178-203, January.
    Other versions:
  10. Blanchard, Olivier Jean & Diamond, Peter A, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 417-34, July. [Downloadable!] (restricted)
    Other versions:
  11. Hoon, Hian Teck & Phelps, Edmund S., 1997. "Growth, wealth and the natural rate: Is Europe's jobs crisis a growth crisis?," European Economic Review, Elsevier, vol. 41(3-5), pages 549-557, April. [Downloadable!] (restricted)
  12. Karanassou, Marika & Snower, Dennis J, 1998. "How Labour Market Flexibility Affects Unemployment: Long-Term Implications of the Chain Reaction Theory," Economic Journal, Royal Economic Society, vol. 108(448), pages 832-49, May. [Downloadable!] (restricted)
    Other versions:
  13. Bean, Charles R., 1994. "European unemployment: A retrospective," European Economic Review, Elsevier, vol. 38(3-4), pages 523-534, April. [Downloadable!] (restricted)
  14. Calvo, Guillermo, 1979. "Quasi-Walrasian Theories of Unemployment," American Economic Review, American Economic Association, vol. 69(2), pages 102-07, May. [Downloadable!] (restricted)
  15. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-41, June. [Downloadable!] (restricted)
    Other versions:
  16. J. Michael Orszag & Gylfi Zoega, 1996. "Wages Ahead of Demand," Archive Discussion Papers 9616, Birkbeck, Department of Economics, Mathematics & Statistics.
  17. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306.
  18. Grossman, Sanford J & Hart, Oliver D, 1981. "Implicit Contracts, Moral Hazard, and Unemployment," American Economic Review, American Economic Association, vol. 71(2), pages 301-07, May. [Downloadable!] (restricted)
  19. R. Joseph Monsen & Jr. & Anthony Downs, 1965. "A Theory of Large Managerial Firms," Journal of Political Economy, University of Chicago Press, vol. 73, pages 221. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? IDEAS is also providing many rankings, for example of authors and institutions.

This page was last updated on 2009-11-30.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.