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To Have and to Hold: A Dynamic Cost-Benefit Analysis of Temporary Unemployment Measures

Author

Listed:
  • Kuno J.M. Huisman
  • Jacco J.J. Thijssen

Abstract

This paper analyses the temporary unemployment regulations that several governments of European countries have introduced during the recent recession. We view these measures as a collection of real options that governments provide to firms and value these options. We study, in particular, the effect of such measures on the liquidation decision of the firm. In addition, we study the effect of government limitations on the duration of the programme. We find that temporary unemployment measures delay a firm’s liquidation. However, since the costs of the programme are incurred before the benefits, the discounted benefit-to-cost ratio does not necessarily indicate the programme is good for welfare.

Suggested Citation

  • Kuno J.M. Huisman & Jacco J.J. Thijssen, 2013. "To Have and to Hold: A Dynamic Cost-Benefit Analysis of Temporary Unemployment Measures," Discussion Papers 13/10, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:13/10
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    References listed on IDEAS

    as
    1. Steven J. Davis & Till Von Wachter, 2011. "Recessions and the Costs of Job Loss," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 1-72.
    2. Jacco Thijssen, 2010. "Irreversible investment and discounting: an arbitrage pricing approach," Annals of Finance, Springer, vol. 6(3), pages 295-315, July.
    3. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    4. Alexander Hijzen & Danielle Venn, 2011. "The Role of Short-Time Work Schemes during the 2008-09 Recession," OECD Social, Employment and Migration Working Papers 115, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Temporary unemployment; Real options; Dynamic cost-benefit analysis;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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