|M.Sc Student||Frenkel Moran|
|Subject||Uncertainty and the Demand for Labor in Israel|
|Department||Department of Industrial Engineering and Management||Supervisor||Professor Avner Bar Ilan|
|Full Thesis text - in Hebrew|
The economic theory has much to say about the uncertainty effect on various factors. This effect was examined especially on the demand for capital input. Many theoretical explanations were suggested, but their direction is ambiguous.
Most of the literature in the field of uncertainty and the demand for capital input assume demand for labor as flexible or reversible, or free of adjustment-costs. In reality, the demand for labor input is not adjustment-costs free, and almost every employer has recruitment costs and firing costs which are caused by changing the number of employees. Therefore there is room for relaxing this assumption and further checking of this issue.
The purpose of this paper is to illuminate this subject while performing an empirical test of the effect of uncertainty on the demand for labor in uncertain enviroment, and furthermore, while having adjustment-costs of labor.
Therefore we have examined the demand as a whole, and distinguished between skilled labor (who permanently works in the company) and unskilled labor (who temporarily works in the company).
Since uncertainty may take many forms, measuring uncertainty poses many difficulties. The way we used in checking the uncertainty empirically is by adding standard deviation of the return of the company’s share as an interpret factor. The idea is that in perfect competition, shares prices capture and reflect the various factors which effect the company, among other the fluctuation in prices, technological changes etc. Therefore the standard deviation of the share price is a proxy to the uncertainty in which the company operates.
Two main effects of uncertainty on demand for labor were observed. The first effect is the uncertainty effect direction. The variance of share returns reduces the demand for all labor and for the skilled labor, and increases the demand for the unskilled labor.
The second effect observed is the extent of the uncertainty effect. In absolute values, the elasticity for the unskilled labor is larger than the elasticity for the skilled labor. Hence we can observe that unskilled labor is more fluctuated and more affected by the uncertainty than the skilled labor.