Abstract
This paper analyses the impact of bankruptcies on unemployment in an economy characterised by no substitutability of labour. A computer simulation model is used to analyse its properties. Spectral analysis reveals the existence of cycles in unemployment. It is found that average unemployment tends to be lower the more flexible are wages and interest rates, provided both move anticyclically, and the more rapid is the speed with which existing firms expand. An economy characterised by small firms is found to be more stable with a tendency to a longer cycle than one characterised by large firms. However, given the assumptions we have made, it is also likely to be characterised by higher average unemployment.
Similar content being viewed by others
References
AcsZ. J. and D. B.Audretsch, 1989, ‘Small-Firm Entry in U.S. Manufacturing’, Economica 56, 255–265.
AltmanE. I., 1983, Corporate Financial Distress, New York: John Wiley.
AudretschD. B., 1991, ‘New Firm Survival and the Technological Regime’, Review of Economics and Statistics 73(3), 441–450.
Blanchard, O. J., 1988, ‘Unemployment: Getting the Questions Right and Some of the Answers’, NBER Working Paper No. 2698, Cambridge, Mass.
BlanchardO. J. and L. H.Summers, 1986, ‘Hysteresis and the European Unemployment Problem’, in S.Fisher (ed.), NBER Macroeconomics Annual, Cambridge, Mass: MIT.
BrunoM. and J. D.Sachs, 1985, Economics of Worldwide Stagflation, Cambridge Mass: Harvard University Press.
CorkCommittee, 1982, Insolvency Law and Practice, Report of the Review Committee, Cmnd. 8558, London: HMSO.
GapinskiJ. H., 1981, ‘Steady Growth, Policy Shocks, and Speed of Adjustment under Embodiment and Putty-Clay’, Journal of Macroeconomics 3(2), 147–176.
GapinskiJ. H., 1982, Macroeconomic Theory: Statics, Dynamics and Policy, New York: McGraw-Hill.
GibratR., 1931, Les Inégalités Économiques, Paris: Sirey.
Goudie, A. W. and G. Meeks, 1988, ‘Export and Die: The Exchange Rate and Company Failure in a Macro-Micro Model’, Department of Applied Economics Working Paper, Cambridge.
GoudieA. W. and G.Meeks, 1991, ‘The Exchange Rate and Company Failure in a Macro-Micro Model of the U.K. Company Sector’, Economic Journal 101(May), 444–457.
GrangerC. W. J., 1966, ‘The Typical Spectral Shape of an Economic Variable’, Econometrica 39(1), 150–161.
HudsonJ., 1987, ‘The Age, Regional and Industrial Structure of Company Liquidations’, Journal of Business Finance & Accounting 14(2), 199–213.
HudsonJ., 1988, Unemployment after Keynes: Towards a New General Theory, Hemel Hempstead: Harvester Wheatsheaf.
HudsonJ., 1989, ‘The Birth and Death of Firms’, Quarterly Review of Economics and Business 29(2), 68–86.
HudsonJ., 1995, ‘The Case against Secured Lending’, International Review of Law and Economics 15(1), 47–63.
HudsonJ. R. and K.Cuthbertson, 1993, ‘The Determinants of Bankruptcies in the U.K.: 1971–1988’, Manchester School 61(1), 65–81.
KydlandF. E. and E. F.Prescott, 1982, ‘Time to Build and Aggregate Fluctuations’, Econometrica 50(6), 1345–1370.
MataJ. and P.Portugal, 1994, ‘Life Duration of New Firms’, The Journal of Industrial Economics 62(3), 227–245.
NickellS., 1990, ‘Unemployment: A Survey’, Economic Journal 100(2), 391–439.
SargentT. J., 1979, Macroeconomic Theory, New York: Academic Press.
SchumpeterJ. A., 1939, Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process, 2 Vols., New York/London: McGraw Hill.
SimmonsP., 1989, ‘Bad Luck and Fixed Costs in Personal Bankruptcies’, The Economic Journal 99(2), 92–107.
Van deKlundertT. C. and A. B.vanSchaik, 1990, ‘Unemployment Persistence and Loss of Productive Capacity: A Keynesian Approach’, Journal of Macroeconomics 12(3), 363–380.
Van derPloegF., 1987, ‘Trade Unions, Investment and Employment: A Noncooperative Approach’, European Economic Review 31(7), 1465–1492.
VanDuijnJ. J., 1983, The Long Wave in Economic Life, London: Allen & Unwin.
WadhwaniS., 1986, ‘Inflation, Bankruptcy, Default Premia and the Stock Market’, Economic Journal 96(March), 120–138.
WhiteM. J., 1989, ‘The Corporate Bankruptcy Decision’, Journal of Economic Perspectives 3(2), 129–151.
ZarnowitzV., 1985, ‘Recent Work on Business Cycles in Historical Perspective’, Journal of Economic Literature 23(2), 523–580.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Hudson, J. Bankruptcies, firm size and unemployment: A big bang theory of economic cycles. Small Bus Econ 8, 379–388 (1996). https://doi.org/10.1007/BF00389555
Accepted:
Issue Date:
DOI: https://doi.org/10.1007/BF00389555