Animal spirits at play? Firm sentiments and labour demand during the COVID‐19 pandemic

Ridwan Bolaji Bello

International Labour Review, 2024, vol. 163, issue 4, 517-544

Abstract: Economists have long theorized that sentiments, or spontaneous beliefs that are unjustified by economic fundamentals, are a driver of economic behaviours. In this study, I explore whether such sentiments influenced firms’ behaviours following the outbreak of COVID‐19. Using a sample of Italian firms, I observe that in the immediate aftermath of the outbreak, firms’ expectations about post‐COVID economic recovery largely reflected beliefs unexplained by their COVID‐related experiences. I then show that these beliefs were associated with firms’ labour market behaviours. Firms that displayed more pessimistic beliefs were more likely to implement cost‐cutting labour market measures, such as dismissing employees and reducing work hours.

Date: 2024
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https://doi.org/10.1111/ilr.12438

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Persistent link: https://EconPapers.repec.org/RePEc:bla:intlab:v:163:y:2024:i:4:p:517-544

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