HIRING AND FIRING OPTIMALLY IN A LARGE CORPORATION

We give a simple stochastic model for the optimal size of staff of a l arge (especially, but not only, research) corporation as a function of its wealth and provide a quantitative theory with explicit prescripti ons for increasing, decreasing or leaving constant the number of perso nnel in order to maximize total profit, discounted with fixed interest rate. Features of the optimal policy seem in at least qualitative agr eement with observed practice in that, for example, there are occasion al large-scale downsizings similar to large layoffs or incentive retir ement plans observed in real corporations. In the optimal plan, this t ype of firing occurs only on an upswing, i.e., when the company's fort une ascends to a threshold relative to staff size. Small-scale or 'att rition' firing also occurs under the optimal policy, but this type of firing occurs only on a downswing, when the company's fortune descends to a threshold relative to staff size. The model is extremely simple and depends on only five estimable parameters; thus it should be usefu l for guiding or, at the least, stimulating thought about corporate si zing policy.