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Downsizing the Labor Force by Low and High Proïfit Firms - An Experimental Analysis1

Author

Listed:
  • Werner Güth

    (Max Planck Institute of Economics, Jena)

  • Christian Paul

    (Institut für Wirtschaftstheorie und Operations Research, University of Karlsruhe)

Abstract

One may hope to capture the behavioral and emotional effects of downsizing the labor force in rather abstract settings as an ultimatum game (see Fischer et al. (2008)), or try to explore downsizing in its more natural principal-agent scenario with a labor market background. We pursue the latter approach and test experimentally whether downsizing occurs whenever (game) theoretically predicted and whether effort reactions question its proïfitability. Our main findings are that downsizing seems to happen less often than predicted and that its frequency does not depend on whether, theoretically, its gains are rather large or small. Interestingly, we also find strong evidence that piece-rate offers are used in a suboptimal way.

Suggested Citation

  • Werner Güth & Christian Paul, 2008. "Downsizing the Labor Force by Low and High Proïfit Firms - An Experimental Analysis1," Jena Economics Research Papers 2008-087, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2008-087
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    File URL: https://oweb.b67.uni-jena.de/Papers/jerp2008/wp_2008_087.pdf
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    More about this item

    Keywords

    downsizing; experimental economics; principal-agent model; labor economics;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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