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Re-Employment Bonuses in a Signalling Model of Temporary Layoffs

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Author Info
Rodriguez-Planas, Nuria () (Mathematica Policy Research and IZA Bonn)

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Abstract

Temporary layoffs are an important feature of the United States labor market. If these employer-employee relationships exist because of valuable job-matches, unemployment among high-productivity laid-off workers may be optimal from societal perspective. However, because of asymmetric information, low-productivity workers may behave strategically, and choose unemployment instead of low-wage jobs, resulting in an inefficient level of unemployment. This paper shows that in such cases, a re-employment bonus may give the correct incentives to laid-off workers and achieve the optimal equilibrium. The paper analyzes the equity properties of such a policy and its cost effectiveness. Finally, the model fits the data and offers several policy implications.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1010.

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Length: 18 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:iza:izadps:dp1010

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Related research
Keywords: temporary layoffs; recall expectations; unemployment; signalling and re-employment bonus demonstrations;

Other versions of this item:

Find related papers by JEL classification:
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

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References listed on IDEAS
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  1. Carl Davidson & Stephen A. Woodbury, 1996. "Unemployment Insurance and Unemployment: Implications of the Reemployment Bonus Experiments," Staff Working Papers 96-44, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
  2. Christopher J. O'Leary & Paul Decker & Stephen A. Wandner, 1997. "Reemployment Bonuses and Profiling," Staff Working Papers 98-51, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
  3. Katz, Lawrence F & Meyer, Bruce D, 1990. "Unemployment Insurance, Recall Expectations, and Unemployment Outcomes," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 973-1002, November. [Downloadable!] (restricted)
    Other versions:
  4. Gibbons, Robert & Katz, Lawrence F, 1991. "Layoffs and Lemons," Journal of Labor Economics, University of Chicago Press, vol. 9(4), pages 351-80, October. [Downloadable!] (restricted)
    Other versions:
  5. Bruce D. Meyer, 1995. "Lessons from the U.S. Unemployment Insurance Experiments," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 91-131, March. [Downloadable!] (restricted)
  6. Lawrence F. Katz, 1986. "Layoffs, Recall and the Duration of Unemployment," NBER Working Papers 1825, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Albert Ma, C.T. & Weiss, A.M., 1991. "A Signaling Theory of Unemployment," Papers 7, Boston University - Department of Economics.
    Other versions:
  8. Woodbury, Stephen A & Spiegelman, Robert G, 1987. "Bonuses to Workers and Employers to Reduce Unemployment: Randomized Trials in Illinois," American Economic Review, American Economic Association, vol. 77(4), pages 513-30, September. [Downloadable!] (restricted)
  9. Meyer, Bruce D, 1996. "What Have We Learned from the Illinois Reemployment Bonus Experiment?," Journal of Labor Economics, University of Chicago Press, vol. 14(1), pages 26-51, January. [Downloadable!] (restricted)
  10. Nuria Rodriguez-Planas, 2003. "Signaling in The Labor Market: New Evidence On Layoffs, and Plant Closings," William Davidson Institute Working Papers Series 2003-610, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
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