Reference

Vaidya and Knudsen (in review) What Shall We Do with the Hoarded Labor? Strategic Reallocations in Economic Downturns

What

Paper that empirically study factors that make firms more and less likely ro reallocate idle employees to alternative (productive) use such as development and training.

Abstract

We investigate factors that influence a scarcely studied managerial decision in economic downturns; the decision to reallocate hoarded employees with an idle capacity to other productive uses within the firm. Using the oil shock of 2014-15 as our empirical context, we make several interesting findings. First, we find that the relationship between demand changes and strategic reallocation of idle capacity follows a cubic relationship. Second, we find that firms with higher adjustment costs of human capital have a higher tendency to reallocate idle human capital to alternative uses. Third and finally, we show that both firm size and expected duration of the downturn are weakly positively associated with strategic reallocation. Large firms are more likely to strategically reallocate administrative staff to alternative use, and more optimistic firms are more likely to reallocate engineers and administrative staff. In all, our results show that strategic reallocations occur in line with theoretical assumptions.

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