Labour Demand in Germany: An Assessment of Non-Wage Labour Costs

25 Pages Posted: 11 Jun 2003

See all articles by Yu-Fu Chen

Yu-Fu Chen

University of Dundee - Department of Economic Studies

Michael Funke

University of Hamburg - Department of Economics; Tallinn University of Technology (TUT)

Date Written: May 2003

Abstract

The data indicate that non-wage labour costs in Germany have reached a record high in recent years. From 1972 to 2001, the ratio of non-wage labour costs to direct compensation in West German manufacturing industry rose from 55.6 per cent to 81.2 per cent. The topic of nonwage labour costs is 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 revenues 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.

Keywords: Real Options, Labour Demand, Non-wage Labour Costs, Hiring and Firing Costs, Germany

JEL Classification: D81, J23, J31, J32

Suggested Citation

Chen, Yu-Fu and Funke, Michael, Labour Demand in Germany: An Assessment of Non-Wage Labour Costs (May 2003). Available at SSRN: https://ssrn.com/abstract=415020 or http://dx.doi.org/10.2139/ssrn.415020

Yu-Fu Chen

University of Dundee - Department of Economic Studies ( email )

Dundee DD1 4HN, Scotland
United Kingdom
+44 1382 344 383 (Phone)
+44 1382 344 691 (Fax)

Michael Funke (Contact Author)

University of Hamburg - Department of Economics ( email )

Von-Melle-Park 5
room 2128 C rise
Hamburg, 20146
Germany

Tallinn University of Technology (TUT) ( email )

Ehitajate tee 5
Tallinn, 12618
Estonia

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