Involuntary Layoffs in a Model with Asymmetry 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 InfoPaper provided by Pennsylvania State - Department of Economics in its series Papers with number 12-90-4.
Length: 32 pages
Date of creation: 1990
Date of revision:
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Postal: PENNSYLVANIA STATE UNIVERSITY, DEPARTMENT OF ECONOMICS, UNIVERSITY PARK PENNSYLVANIA 16802 U.S.A.
Web page: http://econ.la.psu.edu/
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contracts ; labour market ; enterprises;
Other versions of this item:
- Laing, Derek, 1994. "Involuntary Layoffs in a Model with Asymmetric Information Concerning Worker Ability," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 375-92, April.
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- Waldman, Michael, 1996. "Asymmetric learning and the wage/productivity relationship," Journal of Economic Behavior & Organization, Elsevier, vol. 31(3), pages 419-429, December.
- Wagner, Alexander F, 2011. "Relational contracts when the agent's productivity inside the relationship is correlated with outside opportunities," CEPR Discussion Papers 8378, C.E.P.R. Discussion Papers.
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