Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56535
Authors: 
Göcke, Matthias
Year of Publication: 
2010
Series/Report no.: 
Joint discussion paper series in economics 29-2010
Abstract: 
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.
Subjects: 
recession
employment
sunk firing costs
uncertainty
employment subsidy
JEL: 
J63
J68
D81
Document Type: 
Working Paper

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