Downsizing the Labor Force by Low and High Proïfit Firms - An Experimental Analysis1

Werner Güth () and Christian Paul ()
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Christian Paul: Institut für Wirtschaftstheorie und Operations Research, University of Karlsruhe

No 2008-087, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: One may hope to capture the behavioral and emotional effects of downsizing the labor force in rather abstract settings as an ultimatum game (see Fischer et al. (2008)), or try to explore downsizing in its more natural principal-agent scenario with a labor market background. We pursue the latter approach and test experimentally whether downsizing occurs whenever (game) theoretically predicted and whether effort reactions question its proïfitability. Our main findings are that downsizing seems to happen less often than predicted and that its frequency does not depend on whether, theoretically, its gains are rather large or small. Interestingly, we also find strong evidence that piece-rate offers are used in a suboptimal way.

Keywords: downsizing; experimental economics; principal-agent model; labor economics (search for similar items in EconPapers)
JEL-codes: C72 C91 D21 J01 (search for similar items in EconPapers)
Date: 2008-11-12
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2008-087

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