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Hence, the level of b greatly affects a firm's decision to implement layoffs or wage cuts.
Inversely, the higher the layoff cost per worker (c L ), the less the incentive for the firm to implement layoffs.
What, then, is the mechanism whereby firms are reluctant to cut wages and tend to implement layoffs?1.
Therefore, these factors can also be an incentive for the firm to implement layoffs rather than wage cuts.
If the piece rate meets a certain threshold ((overline {b})) or higher (i.e., if (b geq overline {b}) holds), a firm will implement layoffs only.
(1) If the piece rate meets a certain threshold ((overline {b})) or higher (i.e., if (b geq overline {b}) holds), a firm will implement layoffs only.
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Note that they answered the questions regardless of whether the firm had already implemented layoffs.
However, if a firm implements layoffs or wage cuts, a variety of costs occur.
At the same time, the probability of implementing layoffs is higher for firms using the performance-based pay system.
The fixed costs of employment, c H, that a firm can save by implementing layoffs are large.
During financial crises, if there is no surplus money to invest in reconstruction, firms need to collect funds by implementing layoffs and/or wage cuts.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com