Why labour hoarding may be rational: A model offirm behaviour during transition

In the Former Soviet Union, the early 1990s were characterized by largefalls in GDP and small changes to already low unemployment. The slowadjustment to unemployment was a result of employers using variousmeans to maintain employment levels, including; extended periods ofunpaid leave, reduced hours of work and non-payment of wages. Atheoretical model presented here explains why it was rational for firms toadjust labour in this way. The nature of inherited features of the Sovietlabour market and lack of institutions necessary for a competitive marketeconomy meant it was in the firm's interest initially to maintainemployment levels. Quantitative analysis using Kyrgyz data for 1993 and1996 provides evidence of changing economic behaviour in agents overthis period.[...]