In this paper we provide theoretical and empirical analyses of an asymmetric-information model of layoffs in which the current employer is better informed about its workers' abilities than prospective employers are. The key feature of the model is that when firms have discretion with respect to whom to lay off, the market infers that laid-off workers are of low ability. Since no such negative inference should be attached o workers displaced in a plant closing, our model predicts that the postdisplacement wages of otherwise observationally equivalent workers will be higher for those displaced by plant closings than for those displaced by layoffs. An extension of our model predicts that the average postdisplacement unemployment spell of otherwise observationally equivalent workers will be shorter for those displaced by plant closings than for those displaced by layoffs. In our empirical work, we use data from the Displaced Workers Supplements in the January 1984 and 1986 Current Population Surveys. We find that the evidence (with respect to both re-employment wages and postdisplacement unemployment duration) is consistent with the idea that laid off workers are viewed less favorably by the market than are those losing jobs in plant closings. Our findings are much stronger for workers laid off from jobs where employers have discretion over whom to lay off.
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Length: Date of creation: Dec 1991 Date of revision: Publication status: published as Journal of Labor Economics, Vol. 9, No. 4, pp. 351-380, (October 1991). Handle: RePEc:nbr:nberwo:2968
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Article
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)
Paper
Robert Gibbons & Lawrence Katz, 1989.
"Layoffs and Lemons,"
Working Papers
629, Princeton University, Department of Economics, Industrial Relations Section..
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Gibbons, R. & Katz, L.F., 1989.
"Layoffs And Lemons,"
Working papers
531, Massachusetts Institute of Technology (MIT), Department of Economics.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Riordan, Michael H & Staiger, Robert W, 1993.
"Sectoral Shocks and Structural Unemployment,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 611-29, August.
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