Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76427
Authors: 
Chen, Yu-Fu
Funke, Michael
Year of Publication: 
2003
Series/Report no.: 
CESifo Working Paper 952
Abstract: 
The data indicate that non-wage labour costs in Germany have reached a record high in recent years. From 1972 to 2001, the ratio of non-wage labour costs to direct compensation in West German manufacturing industry rose from 55.6 per cent to 81.2 per cent. The topic of non-wage labour costs is increasingly being discussed among and between the political parties because non-wage labour costs are likely to have major negative effects on employment. We follow the real options approach, which allows us to investigate the value to a firm of waiting to adjust labour when the firm´s revenues are stochastic and adjustment costs are sunk. Simulation exercises show that the interaction between hiring and firing costs, non-wage labour costs and uncertainty can have important ramifications for employment dynamics.
Subjects: 
real options
labour demand
non-wage labour costs
hiring and firing costs
Germany
Document Type: 
Working Paper

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