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11 A Complete Model of the Firms and Policy Simulations
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Published:August 1994
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Abstract
In previous chapters different aspects of firms ‘ behaviour during the reform period have been analysed. In Chapter 4 a model of the employment and wage decisions of the firm was presented, in which the constraints of the wage bill imposed by the labour bureau were found to be significant. An important feature of that analysis was the relation of the bonus to the efficiency of the firm as measured indirectly by value added per worker. The policy mechanism behind this is that firms are permitted to retain some profits for the payment of bonuses. In Chapter 5, the production and cost behaviour of the firm was explored within a production function framework. The major impact of the bonus/wage ratio on efficiency was identified. However, other policy variables, such as measures of firm autonomy in input and product markets, appeared to have no discernible effects.
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