Heterogeneity in the Effects of Uncertainty Shocks on Labor Market Dynamics and Extensive vs. Intensive Margins of Adjustment

Sangyup Choi, Davide Furceri and Seung Yong Yoo

No 18861, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The real option value theory posits that non-convex adjustment costs pertaining to a firm’s input are central to comprehending the consequences of increased uncertainty. This paper leverages the diversity observed at both sectoral and country levels in the degree of irreversibility associated with hiring and firing, a critical factor generating what is commonly referred to as “wait-and-see†behavior in times of heightened uncertainty. Our empirical findings reveal two key insights. First, in alignment with the concept of second-moment shocks, uncertainty shocks predominantly influence the labor market through the extensive margin rather than the intensive margin. Second, the effects of uncertainty shocks exhibit pronounced heterogeneity across countries and industries, and the adverse employment effects (extensive margin) are amplified in a country with strict employment protection or in an industry characterized by a higher natural layoff rate, consistent with the real option theory.

Keywords: Uncertainty; Irreversibility; Employment protection legislation (search for similar items in EconPapers)
JEL-codes: E24 J20 J50 (search for similar items in EconPapers)
Date: 2024-02
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP18861 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Heterogeneity in the effects of uncertainty shocks on labor market dynamics and extensive vs. intensive margins of adjustment (2024)
Working Paper: Heterogeneity in the Effects of Uncertainty Shocks on Labor Market Dynamics and Extensive vs. Intensive Margins of Adjustment (2024)
Working Paper: Heterogeneity in the Effects of Uncertainty Shocks on Labor Market Dynamics and Extensive vs. Intensive Margins of Adjustment (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:18861

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP18861

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().