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Faculty of Business Administration and Economics, Philipps-Universität Marburg >
MAGKS Joint Discussion Paper Series in Economics, Universität Marburg >
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http://hdl.handle.net/10419/30081
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| Title: | | Firing versus continuing employment if an economic setback is expected  |
| Authors: | | Göcke, Matthias |
| Issue Date: | | 2009 |
| Series/Report no.: | | Joint discussion paper series in economics 2009,18 |
| Abstract: | | 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. |
| Subjects: | | Firing costs and uncertainty probability duration and size of recession |
| JEL: | | D81 J63 |
| Document Type: | | Working Paper |
| Appears in Collections: | | MAGKS Joint Discussion Paper Series in Economics, Universität Marburg
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