Labor Hoarding Research Articles

Co-Determination, Efficiency, and Productivity

We present the first panel estimates of the productivity effects of the unique German institution of parity, board-level co-determination. Although our data span two severe recessions when labour hoarding costs of co-determination are probably highest, and the panel is too short to capture the likely long run benefits in terms of human capital formation and job satisfaction, we find positive productivity effects of the 1976 extension to parity co-determination in large firms.

Is Under‐Employment due to Labour Hoarding? Evidence from the Australian Workplace Industrial Relations Survey

In this paper, Australian data are used to study the characteristics of workers who are constrained in their hours of work. Matched employer–employee data allow us to control for their employers’ characteristics as well. In particular, the information on the firms’ state of demand provides useful evidence on the underlying cause of under‐employment. The labour hoarding model cannot explain the observed patterns involving under‐employment. Alternative explanations are offered.

Labor hoarding, superior information, and business cycle dynamics

In this paper, we test whether a labor-hoarding environment with basic and augmented laws of motion provide an adequate explanation for observed business cycle dynamics. The basic law of motion assumes that the information set used by economic agents to forecast future forcing variables includes only the history of forcing variables. Augmented laws of motion assume that the information set is superior and include both forcing and hidden exogenous variables. We show that the labor-hoarding environment with the basic law of motion fails to replicate observed business cycle facts, while the environment with augmented laws of motion successfully matches these facts.

Employment Restructuring in Russian Industrial Enterprises

Labour market developments in post-Soviet Russia have presented liberal economists with an apparent paradox: the absence of mass compulsory redundancies in the face of substantial collapse in output. The seemingly irrational `labour hoarding' in Russian enterprises has been interpreted as either influenced by workers choosing a wage cut in exchange for job security, or enterprises resisting redundancies in order to obtain state funding, or as a result of rent-seeking firm behaviour. However, systematic research on employment decision-making in industrial enterprises presents another picture. By combining documentary sources with interviews conducted in six industrial enterprises in Russia, this article will suggest that the disproportionate correlation between employment and production decline lies in the fact that the acute technological and structural degradation of the post-Soviet economy has resulted in enterprise adjustment being made through demand for labour.

While Labour Hoarding May Be Over, Insiders' Control is Not. Determinants of Employment Growth in Polish Large Firms, 1996-2001

This paper examines the determinants of employment changes using a panel of Polish large firms during the period 1996-2001. We investigate the impact of wages, output growth, investment, firm size and sectors upon employment, focusing on the asymmetry hypothesis. We find that investment plays an important role in enhancing employment growth. We also notice that employment dynamics is not affected by alternative wages and therefore appears consistent with the ???right to manage??? model. Furthermore, unlike the early transition period, we can confirm that employment adjusts to positive sales growth, not just to decline as found in studies on earlier periods (K?ll?, 1998). This reflects that labour hoarding can no longer be a factor, which decreased employment elasticity in times of positive demand shocks. Interestingly, large state companies appear to cut employment in response to output growth, when one controls for investment. A result, which may be consistent with the insiders (employee) control model.

Enterprise Restructuring in the Context of Urban Transition

This paper examines Russian enterprise reforms in the context of urban transition.The first part gives an overview of the industrial location structure unique to Russia in comparatively isolated regions, traditionally called “mono-profiling towns” (monoprofil'nye goroda) or “town-building enterprises” (gradoobrazuiushchie predpriiatiia), and depicts the case of Baikal'sk Cellulose and Paper Plant (BCPP) as a typical town-building enterprise. The author documents how the uniqueness of this type of enterprise causes the delay of the restructuring process for both private enterprises and public institutions. Nevertheless, It concludes by suggesting that the relation-ship between enterprise and its community, which were constructed in a symbiotic way, has changed. This is also the case for the “elite cites”, often called closed cities, including academic towns, and secret cities in Russian history. In the last decade, they had lost their stature and many privileges due to financial pressure resulting from changes in economic and social circumstances. It was inevitable for the state in the post-So-viet era to reduce and/or eliminate guaranteed social services.The second part focuses on the impact of urban infrastructure on enterprise reforms. Due to a lack of investments in Russia, existing fixed capital faces obsoles-cence. Municipalization of enterprise-owned urban infrastructure poses further threat to the situation. Therefore, many Russian enterprises keep some social assets (catering services, housing, medical services, sports and recreational facilities, kindergarten etc.) at hand. Although this may serve to mitigate impacts of economic reforms in some respects, “urban infrastructure hoarding”, the other side of“labor hoarding” characteristic of Russian enterprises, may lead to more serious social problems such as dilapidated housing (which had existed since the mid 90s in Russia and ruined blocks in the U.S. metropolis after the oil-shock) . No investment in urban infrastructure, its “mercy killing”, can be realized as part of enterprise restructuring. In light of all these, it is no doubt enterprises need to do the final decision-making.

A Monetary Model of Factor Utilisation

We investigate the propagation mechanism of monetary shocks in an otherwise standard sticky price model, modified to incorporate factor hoarding in the form of variable capital utilisation rates and labour effort. In contrast to previous studies, we find that real effects of monetary shocks can be generated at relatively low degrees of nominal rigidity. Factor hoarding enriches the propagation mechanism by flattening the marginal cost responses to monetary shocks. The assumption of labour hoarding is crucial for generating persistence, while the assumption of variable capital utilisation allows us to generate realistic investment volatility without having to introduce capital adjustment costs.

Aggregate employment, real business cycles, and superior information

We test whether dynamic, stochastic, general equilibrium artificial economies associated with several labor market structures provide an adequate characterization of aggregate employment volatility and dynamics. Our test is robust to possible misspecifications about the information set used by economic agents to forecast future events. Accounting for agents’ superior information, we find that the divisible labor, indivisible labor, labor adjustment costs, and labor hoarding structures replicate employment volatility, in contrast to the nominal wage contracts structure. Also, the labor hoarding structure provides a substantially better account of employment dynamics.

Why Did Productivity 09 So Much During the Great Depression?

This study assesses five common explanations for the large decline in U.S. total factor productivity (TFP) during the Great Depression: changes in capacity utilization, factor input quality, and production composition; labor hoarding; and increasing returns to scale. The study finds that these factors explain less than onethird of the 18 percent TFP decline between 1929 and 1933. The rest of the decline remains unexplained. The study offers a potential explanation: declines in organization capital, the knowledge firms use to organize production, caused by breakdowns in relationships between firms and their suppliers, for example. As some firms failed during the Depression, efficiency in surviving firms decreased; managers had to shift time away from production in order to establish new relationships, and firms had to shift to unfamiliar technologies that initially were operated inefficiently. This article originally appeared in the American Economic Review. © 2001 by the American Economic Association.

Monetary policy shocks and productivity measures in the G-7 countries

An implication of two-country international real business cycle models is that total factor productivity should be an exogenous stochastic process. Economic theories which feature labor hoarding, variable capacity utilization, and increasing returns predict that measured productivity shifts are not exogenous; instead, expansionary aggregate demand shocks should lead to an increase in measured productivity. For each of the G-7 countries, this paper measures quarterly aggregate total factor productivity for the domestic country and its rest-of-world (G-6) counterpart. In each case the domestic productivity measures are not strictly exogenous: expansionary U.S. monetary policy shocks, as well as other G-6 monetary policy shocks, lead to productivity expansions. The evidence indicates that international business cycle models are misspecified unless they feature endogenous productivity mechanisms.

Why Did Productivity Fall So Much During the Great Depression?

This study assesses five common explanations for the large decline in U.S. total factor productivity (TFP) during the Great Depression: changes in capacity utilization, factor input quality, and production composition; labor hoarding; and increasing returns to scale. The study finds that these factors explain less than onethird of the 18 percent TFP decline between 1929 and 1933. The rest of the decline remains unexplained. The study offers a potential explanation: declines in organization capital, the knowledge firms use to organize production, caused by breakdowns in relationships between firms and their suppliers, for example. As some firms failed during the Depression, efficiency in surviving firms decreased; managers had to shift time away from production in order to establish new relationships, and firms had to shift to unfamiliar technologies that initially were operated inefficiently. This article originally appeared in the American Economic Review. © 2001 by the American Economic Association.

Shirking and the choice of technology: a theory of production inefficiency with an empirical application

We develop a model of shirking and technology choice and show that organizations exercising less effective direct control over shirking adopt technologies that underutilize the workforce to a greater degree relative to neoclassical counterparts in order to control shirking indirectly. Thus technical inefficiency arises endogenously as a rational response to allocative inefficiency caused by shirking. An empirical analysis of data from a sample of collective and private farms operating in Jewish Palestine reveals the presence of shirking, and supports the prediction that farms with less effective direct control over shirking exhibit greater labor hoarding as a manifestation of technical inefficiency.

Employment and Wages in Enterprises under Communism and in Transition: Evidence from Central Europe and Russia

This paper presents a comparative analysis of employment and wage behavior of firms in the Czech Republic, Slovakia, Poland, Hungary and Russia during the late 1980s to the early 1990s. The four main findings are: 1) There is evidence of some (not excessive) labor hoarding before the transition and it disappeared shortly thereafter; 2) The estimated elasticities of demand grew over the transition, starting from zero in Russia, the Czech Republic and Slovakia and from sizeable levels in Hungary and Poland. By the end of the period, the elasticities for the four East European countries were quite similar and those for Russia had not changed significantly; 3) Once other factors are controlled for, there is no significant difference in the employment behavior among firms by ownership or legal status. However, Czech, Slovak and Polish private firms did pay higher wages than state-owned firms immediately after the start of the transition; 4) A closer examination in the Czech Republic of state-owned enterprises (SOEs) and newly established firms indicates that SOEs had lower elasticities of employment and allowed less rent sharing than the newly established firms.

Increasing Returns, Labour Utilization and Externalities: Procyclical Productivity in the United States and Japan

This paper investigates procyclical productivity and attempts to discriminate among several competing explanations. The study focuses on the United States and Japan, since the different industrial relations in these two economies serve to cast a sharper light on the procyclical productivity debate. Labour hoarding, evaluated through the introduction of a labour utilization proxy, proves to be an important influence. The interpretation of the role of external economies remains an open issue.

Cyclical behaviour of productivity growth and price-cost margins: asymmetry and market power effects

A cross-sectional analysis was performed on the NBER Manufacturing Productivity database (450 four-digit industries) to investigate the behaviour of total factor productivity growth rates (PROD) and price-marginal cost ratios (PMC) in US manufacturing industries. This analysis allows for asymmetric behaviour and determines the effects of imperfect competition on cyclicality. Results indicate that PROD is procyclical, more so in contractions, and that market power is associated with an even greater increase in PROD during expansions; this suggests that variable input utilization (e.g. labour hoarding) is responsible for productivity growth fluctuations, and that firms in less competitive industries have more slack and can thus use inputs more intensively during booms. PMC decreases in both expansions and contractions, and the contractionary decrease is smaller in monopolistic industries; this can be attributed to capacity constraints in expansions and price cutting in contractions, with monopolistic industries less likely to engage in price competition.

Fiscal Policy and Labour Market Institutions

Developing a labour market model of Saint-Paul, this paper studies the influence of fiscal policy on the labour market and the issue of political support of fiscal policies, and explains the existence of labour hoarding in Russian firms. Two models are developed: the model of political support of flexibility / rigidity and the model of political support of fiscal policies. In the first model we find that when the rent of employees in the 'primary sector,' with good high paid jobs, is high, and the rent of employees in the 'secondary sector' with bad low paid jobs, is very low, all the employed population supports institutions of employment protection. A decrease in the rents of the employees in the secondary and primary sector diminishes the support for employment protection. The second model shows the conditions of political support of income redistribution in case of two- and three-tier economies.

Product market competition and the industry price–cost markup fluctuations:: role of energy price and monetary changes

We examine the role played by imperfect competition in the response of markups to energy price and monetary changes. We find: (i) for concentrated industries, markups increase with monetary expansion and decrease when energy prices increase; the elasticity with respect to energy prices is greater than monetary changes; (ii) for low concentration industries, markups are virtually unaffected by monetary changes and the energy price elasticities are statistically insignificant; (iii) markups are procyclical over the industry-specific cycle; and (iv) increased import competition lowers markups only in the concentrated industries. The energy price increases (decreases) during the 1970s (1980s) may have been a key factor contributing to the narrowing (widening) of the markup gap between high and low concentration industries. We provide evidence that procyclical markups in concentrated industries are not being driven by differences in the degree of labor hoarding between low and high concentration industries.

Employment - Wage Decisions in the Insider-Owned Firm

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.

Labour Hoarding, Price Rigidity and the Theory of Imperfect Competition under Uncertain Demand

It is shown that a monopolistic firm under uncertainty may be inclined to keep some of its output unsold when demand is low. This gives rise to changes in conventional results. Under uncertainty, a risk‐neutral monopolistic firm produces more than in a deterministic environment and it refuses to sell its total output when demand is low, because the marginal revenue could become negative or lower than the cost of selling the product. Moreover, in this framework, prices are shown to be more rigid downwards than upwards. The model also provides a new explanation for labour hoarding. JEL classification: D24; D42

The Dynamic Effects of Government Spending Shocks on Employment and Work Hours

In this paper, we analyze the dynamic behavior of employment and hours worked per worker in a stochastic general equilibrium model with a matching mechanism between vacancies and unemployed workers. The model is estimated for the U.S. using the Generalized Methods of Moments (GMM) estimation technique. An increase in government spending raises hours worked per worker and crowds out private consumption due to a negative wealth effect. On the path converging towards the steady state, private consumption is below its long run average and increases, which implies that the interest rate is above its long run average and increases. The interest rate effect dominated the pure economic rent effect on the capital value of a hired worker to the firm, causing a reduction of job openings and consequently a decrease in employment. These results are contrasted with the predictions of a version of Burnside, Eichenbaum and Rebels?s (1993) labor hoarding model.