BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Employment - wage decisions in the insider-owned firm
Abstract: The paper is intended to explain low sensitivity of
employment decisions observed in transition economies where insider
ownership prevails and capital markets are not highly developed. We
introduce a stability concept for employment levels of a labor-managed firm
and prove that there exists a segment of stable employment levels. If a
level belongs to the interior of the segment then the firm keeps the same
labor input level under any not too large changes. By contrast, the wage
rate is re-sponsive. Only the firms on the boundaries of the segment may
reconsider em-ployment decisions. Deterioration of market conditions
entails decreasing labor inputs for firms with much excess labor and, the
same time, increases employment for firms with low levels of labor input.
This creates inter-firm flows of workforce and restrains the rise of total
unemployment. Stability segments exist also for firms where employment-wage
decisions are made by bargaining between workers and managers, and may
exist for manager-dominated firms as well. Several concepts of labor
hoarding are discussed.
Keywords: labor-owned enterprises; transition; Russia; (follow links to similar papers)
45 pages, January 10, 2000
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