Downsizing, Job Insecurity, and Firm Reputation
AbstractThis paper studies how firms make layoff decisions in the presence of adverse shocks. In this uncertain environment, workers' expectations about their job security affect their on-the-job performance. This productivity effect of job insecurity forces firms to strike a balance between laying off redundant workers and maintaining survivors' commitment when deciding on the amount and timing of downsizing. This framework offers an explanation of conservative employment practices (such as zero or reduced layoffs) based on firms having private information about their future profits. High retention rates and wages can signal that the firm has a bright future, boosting workers' confidence. Moreover, the model provides clear predictions about when waves of downsizing will occur as opposed to one-time massive cuts.
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Bibliographic InfoPaper provided by Barcelona Graduate School of Economics in its series Working Papers with number 144.
Date of creation: Nov 2004
Date of revision:
Downsizing; layoffs; employment policies;
Other versions of this item:
- J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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