The Economic Studies Quarterly (Tokyo. 1950)
Online ISSN : 2185-4408
Print ISSN : 0557-109X
ISSN-L : 0557-109X
BUSINESS FLUCTUATIONS AND EMPLOYMENT ADJUSTMENTS
YASUHIRO UESHIMA
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1985 Volume 36 Issue 3 Pages 231-246

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Abstract

In this paper, we formulated a simple employment adjustment model and derived the optimal employment adjustments in the form of a cost function which reflects intra-firm workers' utility functions. The key concepts in this model are the contract form which provides for the utility levels guaranteed by firms against each state (this differs from Azariadis' contract which guarantees a constant utilitylevel ex ante), and intra-firm workers' increasing marginal disutility for working hours. The effects of effective demand policies are also investigated by using our model. The main results are the following:
(1) when orders deviate from normal levels, profit maximizing firms initially respond by changing working hours, then later adjust employment, holding working hours constant.
(2) If utility levels (a function of salaries and working hours) which firms guarantee their employees in the contract are not orders contingent, optimal wages become independent of orders (=output) in recessions and booms.
(3) The multiplier effect in our model is smaller than that in the simple man-hour type Keynesian model because of the difference between increments in aggregate labour income resulting from extensions in working hours on one hand, and from increases in the number of employees on the other.

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