Author(s):
1. Dasa Farcnik, 2. Domen Trobec, Faculty of Economics, University of Ljubljana, Slovenia

Abstract:
The paper analyzes the role of companies’ indebtedness process and labor market adjustments on companies’ performance in a group of Western Balkan countries (Croatia, BiH – RS, Montenegro, FYR Macedonia, Serbia and Slovenia). In particular the paper enlightens differences between individual countries regarding first the labor market reforms and their influence on the companies’ operations in the pre and post-crisis period, second differences in the labor adjustments during the crisis, and third the indebtedness process of companies. After the analysis of labor market reforms in the region, the paper adopts a model of a firm that maximizes the value of equity owned by its shareholders, subject to capital and labor accumulation constraints (Domadenik et al., 2008 and Domadenik et al., 2012) and dynamic adjustment process with autoregressive-distributed lag(ADL) dynamic regression model. Based on the derived static factor demand functions short and long-term elasticities with respect to wages and total revenue are calculated and are indicating labor adjustments separately in the pre and post-crisis period. In addition, the paper also reveals the role of financial accelerator, based on Miller Stieglitz (2008) asset bubble theory, on the indebtedness process and its influence on investment cycles and companies’ performance. Therefore the before mentioned labor elasticities are calculated separately for the companies with different levels and trends of indebtedness and is one of the first papers that actually connects the employees’ adjustments and indebtedness processes in the period leading up to crisis during the crisis.

Key words:
employee adjustments, indebtedness, Western Balkan region

Date of abstract submission:
07.11.2013.

Conference:
REDETE 2014 - Researching Economic Development and Entrepreneurship in Transition Economies