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Why Do Worker-Firm Matches Dissolve?

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Author Info

  • Gielen, Anne C.

    ()
    (Erasmus University Rotterdam)

  • van Ours, Jan C.

    ()
    (Tilburg University)

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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2165.

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Length: 40 pages
Date of creation: Jun 2006
Date of revision:
Publication status: published as 'Layoffs, quits and wage negotiations' in: Economics Letters, 2010, 109 (2), 108-111
Handle: RePEc:iza:izadps:dp2165

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

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References

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Citations

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Cited by:
  1. Gielen, Anne C. & van Ours, Jan C., 2010. "Layoffs, quits and wage negotiations," Economics Letters, Elsevier, vol. 109(2), pages 108-111, November.
  2. Gielen, A. C., 2007. "Performance Pay, Training and Labor Mobility," Discussion Paper 2007-48, Tilburg University, Center for Economic Research.
  3. 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.

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