NON‐WAGE LABOUR COSTS, POLICY UNCERTAINTY AND LABOUR DEMAND – A THEORETICAL ASSESSMENT

Yu-Fu Chen and Michael Funke

Scottish Journal of Political Economy, 2005, vol. 52, issue 5, 687-709

Abstract: Labour costs in various European countries have reached a record high in recent years. The topic of non‐wage labour costs is therefore 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 wage and non‐wage costs 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.

Date: 2005
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https://doi.org/10.1111/j.1467-9485.2005.00362.x

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Working Paper: Non-Wage Labour Costs, Policy Uncertainty and Labour Demand - a Theoretical Assessment (2005)
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