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Why do firms alter labour hours just before employment?

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research
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Advanced
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accounting
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westminster

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documents in English
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case study
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4 pages
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  1. Introduction
  2. Choosing the amount of labour services
  3. The asymmetry between hiring and firing
  4. The most common instance of changing the hours worked by employees
  5. Taking on new workers
  6. Conclusion
  7. Bibliography

The model of labour demand in terms of hours worked by employees assumes that firms instantly adjust their employment when the economic environment or business cycle changes. A firm looking to change the size of its work force will always find that it is costly to make spontaneous changes to its labour force. A firm firing a large proportion of its workers, for example, will in most cases suffer some costs when the experience and knowledge of these workers disappear from the work environment. Differently, a firm wishing to expand employment or increase hourly working hours (this maybe due to a rise in output price) will find that hiring additional workers might be equally costly: the firm will have to process the job applicants through the personnel office and train new workers.

[...] In choosing the amount of labour services, a company can alter the dimensions of labour input by altering the amount of hours worked by each employee. The choice of an employer to vary the amount of labour services in hires will largely depend on changes that occur within the labour market. These changes are more usually associated with fluctuations in the structure of labour costs and the relative productivity of persons and hours. Figure 1 below, illustrates the cost structure faced by any given firm in choosing between alternative lengths of the working week at any given time. [...]


[...] Given that there are times when labour demand in terms of the real number of workers employed is constant, unless there are alterations in firms' inventories (stocks of goods not sold), which one can assume there are not, then employers must alter the hours worked in order to respond to changes in product demand[5]. The most common instance of changing the hours worked by employees is the increasing or decreasing availability of overtime. Increasing overtime enables the firm to postpone the hiring of fresh employees without sacrificing out put. [...]

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