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Labor’s Liquidity Service and Firing Costs, Herman Bennett

Abstract
This paper proposes a new effect of firing costs on firms' behavior that builds from firms' demand for liquidity. When a time gap exists between production and its associated revenues, firing can become a liquidity adjustment tool that allows firms to increase their short-term liquidity. I refer to this feature as labor's liquidity service. The presence of firing costs reduces the value of labor's liquidity service, which affects firms' demand for liquidity, and thus, firms' demand for inputs. In addition to this negative effect at the creation margin, I also show that firing costs imply relatively higher destruction for financially restricted firms. I present a model that develops these ideas and show that the presence of firing costs has a stronger negative effect on production levels of firms facing liquidity constraints. Regression analysis, based on country industry panel data sets, provides empirical evidence in line with the liquidity service effect of firing costs proposed. I reject the hypothesis that the effect of firing costs does not depend on the presence of financial restrictions. I find a relatively stronger negative effect of firing costs on the output of industries with higher liquidity requirements and a relatively stronger negative effect of firing costs on the output of small firms
Table Of Contents
Contents; I. Introduction; Figures; 1. ELP Index; II. Labor's Liquidity Service and Firing Costs; A. The Setting; B. The Problem of the Entrepreneur; C. Optimal Scale; D. The Effect of Firing Costs; III. Empirical Analysis; A. Empirical Analysis: Liquidity Requirements; Tables; 1. The Effect of the Interaction Between Firing Costs and Liquidity Requirements: Main Results; 2. The Effect of the Interaction Between Firing Costs and Liquidity Requirements: Robustness Checks; 3. The Effect of the Interaction Between Firing Costs and Liquidity Requirements: Asset Collateralization
Language
eng
Literary Form
non fiction
Note
Description based upon print version of record
Physical Description
1 online resource (36 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781283517751

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