IDEAS home Printed from https://ideas.repec.org/a/taf/recsxx/v25y2022i1p220-241.html
   My bibliography  Save this article

Uncertainty and firms’ labour decisions. Evidence from European countries

Author

Listed:
  • Marta Martínez-Matute
  • Alberto Urtasun

Abstract

Uncertainty affects employers’ decisions about their workforce as well as capital. We exploit differences in how firms change the size of their workforce when uncertainty increases. Using data from the Wage Dynamic Network Survey for 25 European countries, we first construct, unlike the usual aggregate indicators, a set of uncertainty indicators exploiting each firm’s microeconomic environment. We combine variability from the country, sector and size of the firm. Secondly, we investigate the effect of uncertainty on a firm’s strategies to adjust labour through hiring and firing. The results reveal that firms reduce hiring and recur to individual layoffs more frequently when uncertainty increases. An increase of one standard deviation in the uncertainty indicator is associated with an increase in the probability of having frozen hiring by from 9% to 16% of a standard deviation. We also find more significant effects when firms face credit constraints and labour adjustment costs are higher.

Suggested Citation

  • Marta Martínez-Matute & Alberto Urtasun, 2022. "Uncertainty and firms’ labour decisions. Evidence from European countries," Journal of Applied Economics, Taylor & Francis Journals, vol. 25(1), pages 220-241, December.
  • Handle: RePEc:taf:recsxx:v:25:y:2022:i:1:p:220-241
    DOI: 10.1080/15140326.2021.2007724
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/15140326.2021.2007724
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/15140326.2021.2007724?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Katalin Bodnár & Ludmila Fadejeva & Marco Hoeberichts & Mario Izquierdo Peinado & Christophe Jadeau & Eliana Viviano, 2017. "Credit shocks and the European labour market," Working Papers 1747, Banco de España.
    2. Thomas Y. Mathä & Stephen Millard & Tairi Rõõm & Ladislav Wintr & Robert Wyszyński, 2021. "Shocks and labour cost adjustment: evidence from a survey of European firms," Oxford Economic Papers, Oxford University Press, vol. 73(3), pages 1008-1033.
    3. Benjamin Born & Sebastian Breuer & Steffen Elstner, 2018. "Uncertainty and the Great Recession," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 80(5), pages 951-971, October.
    4. Mecikovsky, Ariel Matias & Meier, Matthias, 2014. "Do plants freeze upon uncertainty shocks?," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100541, Verein für Socialpolitik / German Economic Association.
    5. Binding, Garret & Dibiasi, Andreas, 2017. "Exchange rate uncertainty and firm investment plans evidence from Swiss survey data," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 1-27.
    6. Bonciani, Dario & Roye, Björn van, 2016. "Uncertainty shocks, banking frictions and economic activity," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 200-219.
    7. Choi, Sangyup & Furceri, Davide & Huang, Yi & Loungani, Prakash, 2018. "Aggregate uncertainty and sectoral productivity growth: The role of credit constraints," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 314-330.
    8. Dibiasi, Andreas & Abberger, Klaus & Siegenthaler, Michael & Sturm, Jan-Egbert, 2018. "The effects of policy uncertainty on investment: Evidence from the unexpected acceptance of a far-reaching referendum in Switzerland," European Economic Review, Elsevier, vol. 104(C), pages 38-67.
    9. R?diger Bachmann & Steffen Elstner & Eric R. Sims, 2013. "Uncertainty and Economic Activity: Evidence from Business Survey Data," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 217-249, April.
    10. Corinna Ghirelli & María Gil & Javier J. Pérez & Alberto Urtasun, 2021. "Measuring economic and economic policy uncertainty and their macroeconomic effects: the case of Spain," Empirical Economics, Springer, vol. 60(2), pages 869-892, February.
    11. Bachmann, Rüdiger & Bayer, Christian, 2013. "‘Wait-and-See’ business cycles?," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 704-719.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marta Martínez-Matute & Alberto Urtasun, 2018. "Uncertainty, firm heterogeneity and labour adjustments. Evidence from European countries," Working Papers 1821, Banco de España.
    2. Efrem Castelnuovo, 2022. "Uncertainty Before and During COVID-19: A Survey," "Marco Fanno" Working Papers 0279, Dipartimento di Scienze Economiche "Marco Fanno".
    3. Bańbura, Marta & Albani, Maria & Ambrocio, Gene & Bursian, Dirk & Buss, Ginters & de Winter, Jasper & Gavura, Miroslav & Giordano, Claire & Júlio, Paulo & Le Roux, Julien & Lozej, Matija & Malthe-Thag, 2018. "Business investment in EU countries," Occasional Paper Series 215, European Central Bank.
    4. Nikolay Hristov & Markus Roth, 2019. "Uncertainty Shocks and Financial Crisis Indicators," CESifo Working Paper Series 7839, CESifo.
    5. Bonciani, Dario, 2015. "Estimating the effects of uncertainty over the business cycle," MPRA Paper 65921, University Library of Munich, Germany.
    6. Straub, Ludwig & Ulbricht, Robert, 2015. "Endogenous Uncertainty and Credit Crunches," TSE Working Papers 15-604, Toulouse School of Economics (TSE), revised Dec 2017.
    7. Oscar Claveria & Petar Sorić, 2023. "Labour market uncertainty after the irruption of COVID-19," Empirical Economics, Springer, vol. 64(4), pages 1897-1945, April.
    8. Bhanu Pratap & Nalin Priyaranjan, 2023. "Macroeconomic effects of uncertainty: a Google trends-based analysis for India," Empirical Economics, Springer, vol. 65(4), pages 1599-1625, October.
    9. Gomez-Gonzalez, Jose Eduardo & Hirs-Garzon, Jorge & Uribe, Jorge M., 2020. "Global effects of US uncertainty: real and financial shocks on real and financial markets," Working papers 69, Red Investigadores de Economía.
    10. Choi Sangyup & Yoon Chansik, 2022. "Uncertainty, Financial Markets, and Monetary Policy over the Last Century," The B.E. Journal of Macroeconomics, De Gruyter, vol. 22(2), pages 397-434, June.
    11. Reif Magnus, 2021. "Macroeconomic uncertainty and forecasting macroeconomic aggregates," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 25(2), pages 1-20, April.
    12. Munechika Katayama & Kwang Hwan Kim, 2018. "Uncertainty Shocks and the Relative Price of Investment Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 163-178, October.
    13. Meinen, Philipp & Roehe, Oke, 2017. "On measuring uncertainty and its impact on investment: Cross-country evidence from the euro area," European Economic Review, Elsevier, vol. 92(C), pages 161-179.
    14. Śmiech, Sławomir & Papież, Monika & Shahzad, Syed Jawad Hussain, 2020. "Spillover among financial, industrial and consumer uncertainties. The case of EU member states," International Review of Financial Analysis, Elsevier, vol. 70(C).
    15. Efrem Castelnuovo, 2019. "Domestic and global uncertainty: A survey and some new results," CAMA Working Papers 2019-75, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    16. Klaus Abberger & Andreas Dibiasi & Michael Siegenthaler & Jan-Egbert Sturm, 2016. "The Effect of Policy Uncertainty on Investment Plans," KOF Working papers 16-406, KOF Swiss Economic Institute, ETH Zurich.
    17. Laurent Ferrara & Stéphane Lhuissier & Fabien Tripier, 2018. "Uncertainty Fluctuations: Measures, Effects and Macroeconomic Policy Challenges," Financial and Monetary Policy Studies, in: Laurent Ferrara & Ignacio Hernando & Daniela Marconi (ed.), International Macroeconomics in the Wake of the Global Financial Crisis, pages 159-181, Springer.
    18. Lautenbacher, Stefan, 2020. "Subjective Uncertainty, Expectations, and Firm Behavior," MPRA Paper 103516, University Library of Munich, Germany.
    19. Binge, Laurie H. & Boshoff, Willem H., 2020. "Economic uncertainty in South Africa," Economic Modelling, Elsevier, vol. 88(C), pages 113-131.
    20. Bonciani, Dario & Oh, Joonseok Jason, 2019. "The long-run effects of uncertainty shocks," Bank of England working papers 802, Bank of England.

    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:recsxx:v:25:y:2022:i:1:p:220-241. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/recs .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.