Abstract
By using control theory, we analyze the behaviour of a firm which expects a demand cycle and occupies a monopsonistic position on the labour market. Consequently, the relative wage rate is used as a tool for regulating the flow of applicants and the rate of quits of employees. The dynamic wage policy is governed by the demand trend but the marginal propensity of workers to quit and the level of hiring costs are also relevant factors in setting the wage rate. The recession period is characterized by a relative wage decrease associated with voluntary quits rather than firing. However, the wage rate starts increasing when demand is still declining and labour hoarded.
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