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

  • Yu-Fu Chen
  • Michael Funke

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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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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