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Selective Firing and Lemons

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  • Michèle A. Weynandt
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    Abstract

    This paper uses the Austrian Social Security Register (ASSD) to explore what information firms infer from the three common types of displacement: individual layoffs, individuals displaced due to a closure and individuals displaced due to a mass layoff. I bring together two strands of the literature, namely signaling and sorting and contribute to it in three ways. First I test whether the individual layoffs are the least productive, second I investigate whether individual layoffs are perceived as “lemons” (with a specific focus on the high ability individuals) and third I raise the question whether the “lemon” exists in the resulting matching pattern. Using the Abowd et al. (1999) model I show that the individual layoffs are the least productive measured by the person fixed effect. I confirm the signaling argument of Gibbons and Katz (1991) that individual layoffs are perceived as “lemons” also for high ability individuals, but I reject the argument of Gibbons and Katz (1991) against the matching model (Becker, 1973). Using three different measures of sorting, I find that the matching changes differentially for the different layoff groups. This leads to the tentative conclusion that both sorting and signaling take place after an individual job loss.

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    Bibliographic Info

    Paper provided by The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria in its series NRN working papers with number 2014-05.

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    Length: 48 pages
    Date of creation: Mar 2014
    Date of revision:
    Handle: RePEc:jku:nrnwps:2014_05

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    Postal: NRN Labor Economics and the Welfare State, c/o Rudolf Winter-Ebmer, Altenbergerstr. 69, 4040 Linz
    Phone: +43-732-2468-8216
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    Keywords: Labor Markets; Employment; Wages; Displacement;

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    References

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