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ISRN Economics
Volume 2013 (2013), Article ID 138182, 13 pages
http://dx.doi.org/10.1155/2013/138182
Research Article

The Effect of Labour Turnover Costs on Average Labour Demand When Recessions Are More Persistent than Booms

Departamento de Fundamentos del Análisis Económico, Facultad de Ciencias Económicas y Empresariales, Universidad de Santiago de Compostela, Avenida do Burgo S/N, A Coruña, 15784 Santiago de Compostela, Spain

Received 10 December 2012; Accepted 26 December 2012

Academic Editors: T. Kuosmanen, J. M. Labeaga, and A. Watts

Copyright © 2013 Pilar Díaz-Vázquez and Luis E. Arjona-Béjar. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper examines how labour turnover costs affect average labour demand when troughs are more persistent than booms. We show that the effect of firing costs on average labour demand is more expansionary (or less contractionary): the greater is the difference between the persistence of troughs and the persistence of booms, and the more prolonged are the macroeconomic shocks. This analysis may shed some light on the expected effect of a reduction of firing costs when an economy is suffering more prolonged recessions (relative to booms): average labour demand will be lower.