Do plants freeze upon uncertainty shocks?

Ariel Matias Mecikovsky and Matthias Meier

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: Using quarterly worker flow data of U.S. establishments, we find that an unexpected increase in uncertainty reduces hirings and quits, while it raises layoffs. This finding suggests that the real option effect of uncertainty is less important for employment decisions. Hence plants do not freeze in response to uncertainty shocks. To explain our findings, we propose a multi-worker plant search and matching model with decreasing returns to scale and financial frictions. As a result of unexpected uncertainty increase, plants reduce their employment size in order to decrease the default risk that arises from higher uncertainty in the economy.

JEL-codes: D81 J23 J63 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-dge and nep-upt
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Do Plants Freeze Upon Uncertainty Shocks? (2019)
Working Paper: Do plants freeze upon uncertainty shocks? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100541

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