Question

1. Which type of firm would you rather work for? One who lays people off, or one that cuts everyone’s hours? Why? Think about the tradeoffs involved. Please use marginal analysis in your reasoning, and back up any claims you make with some documentation.

2. If a law was passed that required all firms to cut hours instead of lay people off, so that everybody was guaranteed a job and only hours worked fluctuated (instead of experiencing joblessness), what do you think the economic consequences would be? Specifically;

* Do you have any thoughts on how (and why) this might affect the duration and severity of recessions?

* What do you think the long-term implications on the health of the economy would be? Think about what effect this policy would have on workers’ effort level, and therefore productivity over time.

* Finally, would this sort of policy cause any other social problems or issues?

Answer 1

Working in a firm would cut work hours rather then termination will be a better option as there would be a job security and it gives employees better motivation and environment to work in .and it also increases employee output and growth.The reason that makes the firm with no termination policy is that it ensures the prevailance of maslow model of employee needs .

As the employee tradeoffs the firm with the  one that cuts everyone’s hours is always better as when the aggregate demand decreases the employee rate in the firm decreases too and it increases subsequently .The firm who has layoff policy would terminate the employee in such market situatuon of low aggregate demand and the vice versa which is not beneficial for the employees but the other firm would rather reduce the working hours of the employees to maintain the equilibrium.

So it should be concluded that though the employee hours will be reduced which will result in less pay but then also there will be job security available with the employees.