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Asymmetric information in the labor market: new evidence on layoffs, recalls, and unemployment

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  • Nuria Rodriguez-Planas

Abstract

In the United States, many laid-off workers are recalled to their former employer. I develop an asymmetric information model of layoffs in which high-productivity workers are more likely to be recalled and may choose to remain unemployed rather than accept a low-wage job. In this case, unemployment can serve as a signal of productivity, and unemployment duration may be positively related to post-layoff wages even among workers who are not recalled. In contrast, since workers whose plant closed cannot be recalled, longer unemployment duration should not have a positive signaling benefit for such workers. Analysis of the data from January 1988-1992 Displaced Workers Supplements to the Current Population Survey reveals that the wage/unemployment duration relation differs between the two groups in the predicted way, and finds evidence consistent with asymmetric information in the U.S. labor market.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-09.

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Date of creation: 1999
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Handle: RePEc:fip:fedgfe:1999-09

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Related research

Keywords: Unemployment ; Labor market;

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