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.Firing costs and uncertainty; probability, duration and size of recession

Learning-by-doing in Two Sectors, Production Structure, Leisure and Optimal Endogenous Growth

A model with two different production sectors and endogenous growth based on the accumulation of sector-specific human capital due to learning-by-doing is presented. Accumulation of experience is measured by means of sectoral production output aggregated over time. Growth is controlled by a dynamic optimisation of the use of time for working in the different sectors or for leisure. Transitional dynamics of production growth, especially of structural change towards a 'new' sector (with relatively scarce experience), of the optimal sectoral distribution of working time and of leisure as well as the corresponding steady state levels are derived and a numerical simulation is performed.

A One-Sector Model with Learning-by-doing, Investment, Leisure, and Optimal Growth

A one-sector model of endogenous growth based on the accumulation of real capital by saving/investing and accumulation of human capital via learning-by-doing is presented. Experience is measured by means of production output aggregated over time. Explicitly separating learning and real capital accumulation allows for an independent control of the learning process via working time. Though based on a simple one-sector model, accumulation of both types of capital is endogenously determined and a simultaneous dynamic optimisation of leisure/working time and of consumption/saving is executed. Transitional dynamics are derived and numerical simulations performed.

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

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.recession; employment; sunk firing costs; uncertainty; employment subsidy

Efficiency Wages and Negotiated Profit-Sharing under Uncertainty

Efficiency wage effects of profit sharing are combined with option values related to stochastic future profit variations. These option effects occur if the workers’ profit share is fixed by long-term contracts. The Pareto-improving optimal level of the sharing ratio is calculated for two different scenarios. First, if the firm can unilaterally decide, the expected present value of net profits is maximised. Second, if the sharing ratio is based on bilateral Nash bargaining. Since a larger variation of revenues implies a higher redistribution of future profits, the inclusion of expected variations results in a lower worker’s profit ratio in both scenarios.

A one-sector model with learning-by-doing, investment, leisure, and optimal growth

A one-sector model of endogenous growth based on the accumulation of real capital by saving/investing and accumulation of human capital via learning-by-doing is presented. Experience is measured by means of production output aggregated over time. Explicitly separating learning and real capital accumulation allows for an independent control of the learning process via working time. Though based on a simple one-sector model, accumulation of both types of capital is endogenously determined and a simultaneous dynamic optimisation of leisure/working time and of consumption/saving is executed. Transitional dynamics are derived and numerical simulations performed

Layoffs in a recession and temporary employment subsidies when a recovery is expected

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

Play-hysteresis in supply as part of a market model

Consequences of path-dependent supply side on the market equilibrium are illustrated. Supply is only a subsystem of the entire market with its forcing variable (price) being endogenous from the perspective of the entire market. This results in feedbacks on the equilibrium of price and quantity if transient exogenous disturbances occur. Aggregate hysteresis is modelled by continuous dynamics showing similarities to ‘mechanical play’. This contrast the standard firm level modelling of hysteresis resulting from discontinuous (activity/inactivity) switches. Play dynamics are captured in a simple linearized way, just by adding two parameters to a supply equation

Play-Hysteresis in Supply as Part of a Market Model

Consequences of path-dependent supply side hysteresis on the market equilibrium are illustrated. Supply is only a subsystem of the entire market with its forcing variable (price) being endogenous from the perspective of the entire market. This results in feedbacks on the equilibrium of price and quantity if transient exogenous disturbances occur. Aggregate hysteresis is modelled by continuous dynamics showing similarities to mechanical play . This contrast the standard firm level modelling of hysteresis resulting from discontinuous activity/inactivity switches. Non-linear play-dynamics are captured in a simple linearized way, just by adding two parameters to a supply equation