Firing versus Continuing Employment if an Economic Setback is Expected
A simple model evaluating a firm’s optimal employment reaction to an imminent recession is presented. Firing costs shelter employment – and this effect is typically amplified by uncertainty due to an option value of waiting. However, this job protection effect is reduced if the expected probability of a setback increases, and if the expected duration and size of a recession grows. If a severe recession is expected with a high probability the option to wait with firing looses its value, thus, immediate layoffs and market exits become the optimal strategy even before the recession turns out to be actual.
|Date of creation:||2009|
|Date of revision:|
|Publication status:||Forthcoming in|
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- Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
- Belke, Ansgar & Gocke, Matthias, 1999. "A Simple Model of Hysteresis in Employment under Exchange Rate Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(3), pages 260-86, August.
- Bentolila, Samuel & Saint-Paul, Gilles, 1992.
"A Model of Labour Demand with Linear Adjustment Costs,"
CEPR Discussion Papers
690, C.E.P.R. Discussion Papers.
- Bentolila, S. & Saint-Paul, G., 1995. "A model of labour demand with linear adjustment costs," Labour Economics, Elsevier, vol. 2(1), pages 105-105, March.
- Bentolila, Samuel & Saint-Paul, Gilles, 1994. "A model of labor demand with linear adjustment costs," Labour Economics, Elsevier, vol. 1(3-4), pages 303-326, September.
- Bentolila, S. & Saint-Paul, G., 1992. "A Model of Labour Demand with Linear Adjustment Costs," DELTA Working Papers 92-05, DELTA (Ecole normale supérieure).
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