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Why Do Worker-Firm Matches Dissolve?

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  • Gielen, Anne
  • van Ours, Jan C

Abstract

In a dynamic labor market worker-firm matches dissolve frequently causing workers to separate and firms to look for replacements. A separation may be initiated by the worker (a quit) or the firm (a layoff), or may result from a joint decision. A dissolution of a worker-firm match may be inefficient if it can be prevented by wage renegotiation. In this paper we study worker separations in the Dutch labor market. From an analysis of matched worker-firm data we conclude that both quits and layoffs are less likely to occur in high quality matches. We also find that workers with a high propensity to quit are offered higher wages to prevent them to quit. Similarly, workers with a high layoff probability give up some of their wage to prevent them from being laid-off. Despite these wage renegotiations some inefficiency in separations remains. However, there is a clear difference between quits and layoffs. Whereas inefficient quits are rare inefficient layoffs occur frequently. These phenomena may be related to downward wage rigidity. While it is easy to renegotiate higher wages to prevent quits it is much more difficult to renegotiate lower wages to prevent layoffs even if that would overall be beneficial to the workers involved.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5739.

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Date of creation: Jul 2006
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Handle: RePEc:cpr:ceprdp:5739

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Keywords: layoffs; matched worker-firm dataset; quits; separations;

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Citations

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Cited by:
  1. Gielen, Anne C., 2007. "Performance Pay, Training and Labor Mobility," IZA Discussion Papers 2932, Institute for the Study of Labor (IZA).
  2. Kuhn, Johan Moritz, 2007. "My Pay is Too Bad (I Quit). Your Pay is Too Good (You're Fired)," Working Papers 07-5, University of Aarhus, Aarhus School of Business, Department of Economics.
  3. Pernilla Andersson Joona & Eskil Wadensjö, 2013. "The best and the brightest or the least successful? Self-employment entry among male wage-earners in Sweden," Small Business Economics, Springer, vol. 40(1), pages 155-172, January.
  4. Gielen, Anne C. & van Ours, Jan C., 2010. "Layoffs, quits and wage negotiations," Economics Letters, Elsevier, vol. 109(2), pages 108-111, November.

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