Hiring Costs Research Articles

Employment and Fear of Unemployment: A Transatlantic Comparison

The paper investigates the welfare differential between employed and non-employed workers in the US and in France. Using a simplified version of the Mortensen-Pissarides matching model, we explore the role of hiring and firing costs in understanding how the welfare differential and the labor market flows differ across the Atlantic. We find that the welfare differential between employed and unemployed workers across the two countries fall apart from each other over the period, but from relatively similar initial values. At the end of the exercice we argue that hirings and firings frictions in both countries are not as far apart as usually assumed. Fear of unemployment appears instead to drive the difference between the two countries. Both the higher trap of inactivity and lower unemployment benefits explain the higher US hiring rate.*

Do search frictions matter for inflation dynamics?

We assess the empirical relevance for inflation dynamics of accounting for the presence of search frictions in the labor market. The new Keynesian Phillips curve explains inflation as being mainly driven by current and expected future marginal costs. Recent empirical research has emphasized different measures of real marginal costs to be consistent with observed inflation persistence. We argue that, allowing for search frictions in the labor market, real marginal cost should also incorporate the cost of generating and maintaining long-term employment relationships, along with conventional measures, such as real unit labor costs. In order to construct a synthetic measure of real marginal costs, we use newly available labor market data on worker finding and separation rates that reflect hiring and firing costs. We then estimate a new Keynesian Phillips curve by generalized method of moments (GMM) using the imputed marginal cost series as an observable and find that the contribution of labor market frictions in explaining inflation dynamics is small.

A goal-programming approach for design of hybrid cellular manufacturing systems in dual resource constrained environments

In this study, a goal-programming model is proposed for the design of hybrid cellular manufacturing (HCM) systems, in a dual resource constrained environment, considering many real-world application issues. The procedure consists of three phases. Following an initial phase involving a Pareto analysis of demand volumes and volatility, a machine-grouping phase is conducted to form manufacturing cells, and a residual functional layout. In this phase, over-assignment of parts to the cells, machine purchasing cost, and loss of functional synergies are attempted to be minimized. Following the formation of cells and the functional layout, a labor allocation phase is carried out by considering worker capabilities and capacities. The total costs of cross-training, hiring, firing and over-assignment of workers to more than one cell are sought to be minimized. An application of the model on real factory data is also provided in order to demonstrate the utility and possible limitations. The industrial problem was solved using professional mathematical programming software.

An Exact and Efficient Algorithm for the Constrained Dynamic Operator Staffing Problem for Call Centers

Call center managers are facing increasing pressure to reduce costs while maintaining acceptable service quality. Consequently, they often face constrained stochastic optimization problems, minimizing cost subject to service-level constraints. Complicating this problem is the fact that customer-arrival rates to call centers are often time varying. Thus, to satisfy their service goals in a cost-effective manner, call centers may employ permanent operators who always provide service, and temporary operators who provide service only when the call center is busy, i.e., when the number of customers in system increases beyond a threshold level. This provides flexibility to dynamically adjust the number of operators providing service in response to the time-varying arrival rate. The constrained dynamic operator staffing (CDOS) problem involves determining the number of permanent and temporary operators, and the threshold value(s) that minimize time-average hiring and opportunity costs subject to service-level constraints. We model the CDOS problem as a constrained Markov decision process (MDP) and seek the optimal nonrandomized policy. The only exact method in the literature to obtain the optimal nonrandomized policy for a constrained MDP is enumeration, which is often computationally prohibitive. We provide a novel exact and efficient solution method, the modified balance equations disjunctive constraints (MBEDC) algorithm, yielding a mixed-integer program formulation; the computation times of this algorithm for sample problems are lower than enumeration by up to a factor of 200, and by a factor of 10 on average. Using our algorithm, we quickly solve diverse instances of the CDOS problem, generating managerial insights into the effects of temporary operators and service-level constraints.

Returns to Tenure or Seniority?

This study documents two empirical regularities, using data for Denmark and Portugal. First, workers who are hired last, are the first to leave the firm (Last In, First Out; LIFO). Second, workers' wages rise with seniority (= a worker's tenure relative to the tenure of her colleagues). We seek to explain these regularities by developing a dynamic model of the firm with stochastic product demand and hiring cost (= irreversible specific investments). There is wage bargaining between a worker and its firm. Separations (quits or layoffs) obey the LIFO rule and bargaining is efficient (a zero surplus at the moment of separation). The LIFO rule provides a stronger bargaining position for senior workers, leading to a return to seniority in wages. Efficiency in hiring requires the workers' bargaining power to be in line with their share in the cost of specific investment. Then, the LIFO rule is a way to protect their property right on the specific investment. We consider the effects of Employment Protection Legislation and risk aversion.

Introducing Financial Frictions and Unemployment into a Small Open Economy Model

Which are the main frictions and driving forces of business cycle dynamics in a small open economy? To answer this question we extend what is becoming the standard new Keynesian model in three dimensions. First, we incorporate frictions in the financing of the capital stock. Second, we model employment frictions in the labor market using a search and matching framework, allowing for endogenous job separations. Third, we extend the model into a small open economy setting. We estimate the model using Bayesian techniques on Swedish data. Our main results are: i) A financial shock to entrepreneurial wealth is pivotal for explaining business cycle fluctuations accounting for substantial amounts of the variance in investment and GDP. ii) The marginal efficiency of investment shock has very limited importance when we match financial market data. iii) Our model does not need any high frequency wage markup shocks to match the data. Furthermore, the labor supply shock is unimportant in explaining GDP. iv) The data indicates that there are costs of hiring, but no costs of vacancy postings per se.

Telephone screening, outreach, and care management for depressed workers and impact on clinical and work productivity outcomes: a randomized controlled trial.

Although guideline-concordant depression treatment is clearly effective, treatment often falls short of evidence-based recommendations. Organized depression care programs significantly improve treatment quality, but employer purchasers have been slow to adopt these programs based on lack of evidence for cost-effectiveness from their perspective. To evaluate the effects of a depression outreach-treatment program on workplace outcomes, a concern to employers. A randomized controlled trial involving 604 employees covered by a managed behavioral health plan were identified in a 2-stage screening process as having significant depression. Patient treatment allocation was concealed and assessment of depression severity and work performance at months 6 and 12 was blinded. Employees with lifetime bipolar disorder, substance disorder, recent mental health specialty care, or suicidality were excluded. A telephonic outreach and care management program encouraged workers to enter outpatient treatment (psychotherapy and/or antidepressant medication), monitored treatment quality continuity, and attempted to improve treatment by giving recommendations to providers. Participants reluctant to enter treatment were offered a structured telephone cognitive behavioral psychotherapy. Depression severity (Quick Inventory of Depressive Symptomatology, QIDS) and work performance (World Health Organization Health and Productivity Questionnaire [HPQ], a validated self-report instrument assessing job retention, time missed from work, work performance, and critical workplace incidents). Combining data across 6- and 12-month assessments, the intervention group had significantly lower QIDS self-report scores (relative odds of recovery, 1.4; 95% confidence interval, 1.1-2.0; P = .009), significantly higher job retention (relative odds, 1.7; 95% confidence interval, 1.1-3.3; P = .02), and significantly more hours worked among the intervention (beta=2.0; P=.02; equivalent to an annualized effect of 2 weeks of work) than the usual care groups that were employed. A systematic program to identify depression and promote effective treatment significantly improves not only clinical outcomes but also workplace outcomes. The financial value of the latter to employers in terms of recovered hiring, training, and salary costs suggests that many employers would experience a positive return on investment from outreach and enhanced treatment of depressed workers. clinicaltrials.gov Identifier: NCT00057590.

A Note on Efficiency Wage Theory and Principal-Agent Theory

Why are principal–agent models used in some circumstances and efficiency wage models in others? In this note, it is argued that efficiency wages provide incentives based on an evaluation of the agent's input, while the incentives analysed in principal–agent models rely on the agent's output. The choice between the two incentive schemes depends on the probability that the agent is caught shirking. Moreover, we demonstrate that a combination of input- and output-related elements provides stronger incentives than payment schemes based on merely one of these elements. However, the combination requires a more complex labour contract involving an increased cost of writing the contract. The interaction between this transaction cost and a hiring cost is analysed.

Stochastic Optimal Control for Staffing and Backlog Policies in a Two‐Stage Customized Service Supply Chain

Motivated by an oilfield services industry case study, we investigate the dynamic behavior of customized service supply chains by developing a two‐stage serial staffing model. Each stage holds no finished goods inventory, but rather only backlogs that can be managed by adjusting staffing levels. We develop optimal control policies to balance backlog costs against hiring and firing personnel costs'assuming shared backlog information—under both centralized and decentralized control. We examine when there is sufficient economic incentive for two completely decentralized stages to begin: (1) to share backlog information without centralizing control, or (2) to completely centralize control. These switching points are determined by the relative service and personnel costs of the two stages. From these results, we show that decentralizing control in many cases does not materially worsen performance, so long as information is shared. Moreover, in some cases, even sharing information is of only marginal benefit.

Econometric modelling of slack and tight labour markets

Empirical and theoretical studies suggest that employment behaviour varies with the state of the labour market since hiring and firing costs depend on the availability of labour. Extending earlier empirical work on this subject, we test for state dependence in employment adjustment and in the effects of forcing variables such as indicators of aggregate demand. We also test whether anticipated labour shortages lead to multiple equilibria in (un)employment. We develop both a linear equilibrium correction model (ECM) and a two-state Markov switching version of the ECM. The models are based on quarterly data for Norwegian industry employment and aggregate unemployment in the period 1974–1996. We find clear evidence of state-dependent adjustment and responses to changes in forcing variables. Yet equilibrium solutions for employment and unemployment appear invariant to cyclical and structural changes in the sample.

The Total Economic Costs Of Finance Faculty Replacement

The purpose of this study is to estimate the total economic costs associated with filling a vacated finance faculty line. These economic costs include both explicit and opportunity costs associated with the production process. Hiring costs include explicit costs such as advertising the position and implicit costs such as the opportunity costs of faculty time spent in various search committee activities. In addition, the recent market for finance professors has included a significant mark-to-market salary component associated with replacing departed faculty with new hires. This paper utilizes survey data from recent finance faculty vacancies at AACSB International accredited schools to estimate the total hiring cost equation.

The Attractiveness of Temporary Employment to Reduce Adjustment Costs: A Conjoint Analysis

In this paper I determine the importance of adjustment costs in employers' hiring decisions. Temporary work arrangements offer potential ways to avoid adjustment costs. I estimate employers' willingness to pay for the characteristics of these work arrangements. I distinguish regular contracts, direct hire temporaries, temporary agency contracts, freelance workers and contract workers, which all have their specific effect on hiring and firing costs. Conjoint analysis on a sample of 1000 Dutch employers is used to determine the relative preference for the constituent characteristics of these employment arrangements. My results indicate that strategies that reduce turnover are more important than strategies to reduce adjustment costs per worker. On average regular contracts are most attractive for employers, because they allow for investment in (firm specific) human capital. Non-standard work arrangements are valued in some situations, e.g., in highly volatile environments. This suggests that temporary contracts are used not only for screening purposes, but also to adjust the workforce to fluctuations on the product market.

Staffing decisions for heterogeneous workers with turnover

In this paper we consider a firm that employs heterogeneous workers to meet demand for its product or service. Workers differ in their skills, speed, and/or quality, and they randomly leave, or turn over. Each period the firm must decide how many workers of each type to hire or fire in order to meet randomly changing demand forecasts at minimal expense. When the number of workers of each type can by continuously varied, the operational cost is jointly convex in the number of workers of each type, hiring and firing costs are linear, and a random fraction of workers of each type leave in each period, the optimal policy has a simple hire- up-to/fire-down-to structure. However, under the more realistic assumption that the number of workers of each type is discrete, the optimal policy is much more difficult to characterize, and depends on the particular notion of discrete convexity used for the cost function. We explore several different notions of discrete convexity and their impact on structural results for the optimal policy.

NON‐WAGE LABOUR COSTS, POLICY UNCERTAINTY AND LABOUR DEMAND – A THEORETICAL ASSESSMENT

AbstractLabour costs in various European countries have reached a record high in recent years. The topic of non‐wage labour costs is therefore increasingly being discussed among and between the political parties because non‐wage labour costs are likely to have major negative effects on employment. We follow the real options approach, which allows us to investigate the value to a firm of waiting to adjust labour when the firm's wage and non‐wage costs are stochastic and adjustment costs are sunk. Simulation exercises show that the interaction between hiring and firing costs, non‐wage labour costs and uncertainty can have important ramifications for employment dynamics.

Is 80 the cost of saving lives? Reduced duty hours, errors, and cost

Is 80 the cost of saving lives? Reduced duty hours, errors, and cost

MONOPOLISTIC COMPETITION AND SEARCH UNEMPLOYMENT

In this paper the monopolistic competition model of dixit and stiglitz for the goods market and the search unemployment model of pissarides are combined. The pissarides part loses its walrasian goods market and the dixit–stiglitz part loses its walrasian labour market. Pissarides’ results now depend on the degree of competition. In the dixit–stiglitz part the size and number of firms as well as aggregate output now depend on aggregate hiring costs, tightness and unemployment, while real wages are not fixed. Some partial results of comparative static properties of the original models survive. New results concerning the effects of changes in labour (goods) market parameters on goods markets (the labour market) variables are obtained and related to the literature on macroeconomic theory with endogenous unemployment and imperfect competition, empirical results and policy issues.

Does employment protection reduce the demand for unskilled labour?

We propose a model in which workers with little education or in the tails of the age distribution – the inexperienced and the old – have more chance of job failure (mismatch). Recruits' average education should then increase and the standard deviation of starting age decrease when strict employment protection raises hiring and firing costs. We test the model using annual distributions of recruits' characteristics from a 1975–1995 panel of plants in Belgium, the Netherlands, Italy, the UK and the US. The model's predictions are supported using the Blanchard–Wolfers index of employment protection as well as our alternative index.

Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation?

Abstract In a baseline micro model a band of inaction due to hiring and firing costs is widened by option value effects of exchange rate uncertainty. Based on this micro foundation, an aggregation approach is presented. Under uncertainty, intervals of weak response to exchange rate reversals (called ‘play’ areas) are introduced on the macro level. ‘Spurts’ in new employment or firing may occur after an initially weak response. Since these mechanisms may apply to other ‘investment’ cases where the aggregation of microeconomic real options effects under uncertainty are relevant, they may even be of a more general interest.

“What, me worry?” Businesses and AIDS at Davos

At the Davos Summit in February, 2005, the World Economic Forum released its current survey on businesses and HIV/AIDS.1 In 1996, we outlined the case for business in Asia to play a pivotal role in preventing the epidemic.2 At that time, an estimated 3 million people in Asia had been infected with HIV. Today that number is estimated at 8·2 million.3 AIDS is a preventable disease. The survey finds an absence of alarm in the business sector which, if true, bodes poorly for success in controlling this epidemic.

Hiring Strategies and the Evolution of Honesty

The evolution of honesty norms in a society is studied. Our approach is based on the hypothesis that hiring or firing strategies chosen by firms may affect honesty: if it becomes common knowledge in the society that being honest is better for workers than cheating employers, then the share of opportunists gradually go down. It is shown that different hiring strategies are rational under different honesty standards. If honesty is not a prevailing social norm and volumes of appropriated rent may by high enough, then firms are better off to stimulate honest behavior by increasing wages. For a relatively honest society, firing cheaters is the best strategy. If honesty standards are intermediate or citizens are too impatient, ignorance of cheating may be rational. Therefore one observes three possible patterns of honesty evolution: honesty norms may either descend to critically low level or stabilize at some point or rise and fall cyclically. We prove that honesty standard rises as losses from dishonest behavior or hiring cost increase, honesty standard falls as rent appropriation opportunities expand or citizens get more impatient, and high expectations of economic growth promote honesty.