Managerial Incentives and Labor Cost Asymmetry

This study investigates the rate of changing labor costs in response to changes in activities. Managers decision leading changes in cost when activities were changed. Managers incentives affected asymmetry of cost behavior. As labors are the essential part of firms for creating value added, each action for adjusting the cost of labor should have been considered. So we test asymmetry of labor cost by using a panel data of 880 firm- years during 2003 to 2012 for the firms listed in Tehran Stock Exchange. The results shows that labor costs increase more rapidly with an activity increase than they decrease with an activity decrease. Moreover, we find the form of more symmetric labor cost behavior for firms that report a small profit. The findings are consistent with this prediction.