exit costs

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Are the financial and transaction costs incurred by a company when it closes down one of its sites and declares redundancies. Exit costs are likely to be higher in a country with relatively strict regulations governing collective redundancy that require extensive consultation with worker representatives and substantial redundancy payments. They are likely to be lower in countries with labour markets that are subject to relatively light regulation. What this means is that a multinational corporation that is seeking to reduce its capacity may opt to close down operations in more deregulated labour markets because it is easier and cheaper to do so. A state policy of deregulation to attract employment, therefore, may have the opposite, perverse effect as companies exit when they face a situation of excess capacity.

Subjects: Human Resource Management.

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