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Can Risk Aversion in Firms Reduce Unemployment Persistence?

Choudhary, A and Levine, P Can Risk Aversion in Firms Reduce Unemployment Persistence? .

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Abstract

This paper contributes to the growing literature that attempts to explain unemployment persistence. We show that when the economy is struck by a negative transitory (or permanent) demand or supply shock, firms can find their way back quicker to the pre-shock (or new) employment levels if they are risk-averse. The reason is that risk aversion in firms creates a self-adjusting mechanism whereby cautious firms adjust hiring and wage-setting decisions to try to regain the pre-shock employment levels and minimize fluctuations in profits. Therefore, perhaps surprisingly, risk aversion in firms is seen as a stabilizing macroeconomic force that reduces unemployment inertia.

Item Type: Other
Authors :
NameEmailORCID
Choudhary, AUNSPECIFIEDUNSPECIFIED
Levine, Pp.levine@surrey.ac.ukUNSPECIFIED
Uncontrolled Keywords : E24, E27, Unemployment, Persistence, Risk Aversion
Depositing User : Symplectic Elements
Date Deposited : 16 May 2017 15:14
Last Modified : 17 May 2017 14:33
URI: http://epubs.surrey.ac.uk/id/eprint/818162

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