Involuntary Layoffs in a Model with Asymmetric Information Concerning Worker Ability
AbstractThis paper examines the contract between a risk-neutral firm and its risk-averse employees, assuming that worker ability is privately learned by the firm after a period of employment. Employers in an external spot labor market attempt to infer worker quality from the observable actions taken by the firm. The threat of spot market raids distorts the optimal contract. Layoffs may be involuntary and can exceed efficient levels. A seniority layoff rule may be included in the contract to avoid the adverse selection problems that arise if layoffs are conducted on the basis of ability. Copyright 1994 by The Review of Economic Studies Limited.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Economic Studies.
Volume (Year): 61 (1994)
Issue (Month): 2 (April)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527
Other versions of this item:
- Laing, D., 1990. "Involuntary Layoffs in a Model with Asymmetry Information Concerning Worker Ability," Papers 12-90-4, Pennsylvania State - Department of Economics.
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