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Hours and Employment in a Stochastic Model of the Firm



    () (Istituto di Economia dell'Impresa e del Lavoro, Universita' Cattolica, Milano)


This paper studies how firms adapt hours and employment to changes in business conditions. For this purpose we build a formal model which accounts for dynamic uncertainty and costly adjustments on both margins of the labour input. Using stochastic methods we find that the optimal employment policy is characterised by inaction as long as hours remain within an interval which includes standard working time. As a consequence, hiring and firing take place only when hours reach the upper and the lower boundaries of the interval. We also apply the model to a study of the impact of worksharing and find that such arrangements not only make firms more reluctant to fire in bad times but also more willing to hire when business conditions improve.

Suggested Citation

  • Giulio PICCIRILLI, 2009. "Hours and Employment in a Stochastic Model of the Firm," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 117(1), pages 85-111.
  • Handle: RePEc:vep:journl:y:2009:v:117:i:1:p:85-111

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    Labour Demand; Turnover Costs; Dynamic Stochastic Optimisation;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs


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