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Workers as Insurance: Anticipated Government Assistance and Factor Demand

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  • Hillman, Arye L
  • Katz, Eliakim
  • Rosenberg, Jacob

Abstract

This paper investigates the effect of anticipation of government assistance on factor demand when the likeliho od of intervention is perceived to increase with the numbers of worke rs laid off in the event of an adverse realization of product price. Workers thus serve, imperfectly, an insurance function for the firm. Internalization by firms of the political sensitivity of governments of unemployment results in more labor being employed and more output produced, although not necessarily by more labor-intensive methods. T he effect can be an implicit subsidy to capital. An adverse-selection effect on firms' locational choice is also identified. Copyright 1987 by Royal Economic Society.

Suggested Citation

  • Hillman, Arye L & Katz, Eliakim & Rosenberg, Jacob, 1987. "Workers as Insurance: Anticipated Government Assistance and Factor Demand," Oxford Economic Papers, Oxford University Press, vol. 39(4), pages 813-820, December.
    • Handle: RePEc:oup:oxecpp:v:39:y:1987:i:4:p:813-20
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    Cited by:

    1. Brucker, Herbert & Schroder, Philipp J.H. & Weise, Christian, 2005. "Can EU conditionality remedy soft budget constraints in transition countries?," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 371-386, June.
    2. Michael P. Leidy, 1994. "Trade Policy And Indirect Rent Seeking: A Synthesis Of Recent Work†," Economics and Politics, Wiley Blackwell, vol. 6(2), pages 97-118, July.
    3. David Godsell & Michael Welker & Ning Zhang, 2017. "Earnings Management During Antidumping Investigations in Europe: Sample‐Wide and Cross‐Sectional Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 55(2), pages 407-457, May.
    4. Schaffer, Mark E., 1998. "Do Firms in Transition Economies Have Soft Budget Constraints? A Reconsideration of Concepts and Evidence," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 80-103, March.
    5. Zuleta, Hernando & Villaveces, Marta Juanita & Andonova, Veneta, 2013. "Conflict and negotiation in Colombia: Are pre-donations useful?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 47(C), pages 105-117.
    6. Alan Bevan & Saul Estrin & Mark E. Schaffer, 1999. "Determinants of Enterprise Performance during Transition," CERT Discussion Papers 9903, Centre for Economic Reform and Transformation, Heriot Watt University.
    7. Mehrdad Vahabi, 2001. "The Soft Budget Constraint: A Theoretical Clarification," Post-Print hal-00629160, HAL.
    8. Forteza, Alvaro, 2001. "Multiple equilibria in government transfer policy," European Journal of Political Economy, Elsevier, vol. 17(3), pages 531-555, September.
    9. Bruce Blonigen & Thomas Prusa, 2003. "The Cost of Antidumping: the Devil is in the Details," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(4), pages 233-245.
    10. Herbert Brücker & Philipp Schröder, 2007. "EU accession and the hardening of soft budget constraints: some macro evidence," Economic Change and Restructuring, Springer, vol. 40(3), pages 235-252, September.
    11. Bruno De Borger & Amihai Glazer, 2015. "Inducing political action by workers," Southern Economic Journal, John Wiley & Sons, vol. 81(4), pages 1117-1144, April.
    12. Tomoe Moore, 2009. "Soft Budget Constraints in EU Transition Economy Enterprises," International Finance, Wiley Blackwell, vol. 12(3), pages 411-430, December.
    13. Nelson, Douglas, 2006. "The political economy of antidumping: A survey," European Journal of Political Economy, Elsevier, vol. 22(3), pages 554-590, September.

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