Browsing by Author "Vanhala, Vili"

Thesis aims to investigate the motivations of the 2018’s planned policy in Finland, that would have allowed small companies to lay off workers easier. Policy was motivated by small companies’ having more uncertainty about employment decisions. It was assumed that when companies that were small enough could dismiss workers more easily, they would hire more employees, which would increase overall employment. At first, thesis discusses about effort and employees in a more general level using the one difference of dismissal conditions that exists in the Finnish labor market. It is found that there are differences in the employment decisions: employers do not want to hire any worker, they know that some perform better than other and there are incentives to choose a suitable worker. From these results, discussion becomes about potential moral hazard that could cause small companies to be less willing to hire additional workers. It is theoretically motivated, that easing dismissal conditions could improve employment through increased effort that can follow from the easing of dismissal conditions. However, there is not found a moral hazard problem that could only exist in small companies. Small companies may have harder to find a suitable worker for the potentially open position. Moral hazard might not be the only thing that explains this. It can also be attributed to the different characteristics of small and large firms. In addition, even if the employment could increase when dismissal conditions are eased, effects would be relatively small in the theoretical framework.