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Layoffs and Lemons

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  • Robert Gibbons
  • Lawrence Katz

Abstract

We provide theoretical and empirical analyses of an asymmetric-information model of layoffs. When firms have discretion with respect to whom to lay off, the market infers that laid-off workers are of low ability. Assuming that no such negative inference is warranted if workers are displaced in a plant closing, postdisplacement wages should be lower and postdisplacement unemployment spells should be longer for those displaced by layoffs than for those displaced by plant closings, but predisplacement wages should not differ by cause of displacement. Evidence on displaced workers from Current Population Surveys supports all three of our model's predictions.

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Bibliographic Info

Paper provided by Princeton University, Department of Economics, Industrial Relations Section. in its series Working Papers with number 629.

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Date of creation: Apr 1989
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Handle: RePEc:pri:indrel:dsp01bg257f06q

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Related research

Keywords: layoffs; unemployment; wages; asymmetric information; displaced workers;

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References

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  1. Caplin, A. & Nalebuff, B., 1989. "Aggregation And Social Choice: A Mean Voter Theorem," Discussion Papers, Columbia University, Department of Economics 1989_31, Columbia University, Department of Economics.
  2. Lawrence F. Katz, 1986. "Layoffs, Recall and the Duration of Unemployment," NBER Working Papers 1825, National Bureau of Economic Research, Inc.
  3. Katz, Lawrence F & Meyer, Bruce D, 1990. "Unemployment Insurance, Recall Expectations, and Unemployment Outcomes," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(4), pages 973-1002, November.
  4. Douglas L. Kruse, 1988. "International trade and the labor market experience of displaced workers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 41(3), pages 402-417, April.
  5. Michael H. Riordan & Robert W. Staiger, 1988. "Sectoral Shocks and Structural Unemployment," NBER Working Papers 2522, National Bureau of Economic Research, Inc.
  6. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  7. Robert Gibbons & Lawrence Katz, 1989. "Layoffs and Lemons," NBER Working Papers 2968, National Bureau of Economic Research, Inc.
  8. Greenwald, Bruce C, 1986. "Adverse Selection in the Labour Market," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(3), pages 325-47, July.
  9. Katharine G. Abraham & James L. Medoff, 1984. "Length of service and layoffs in union and nonunion work groups," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 38(1), pages 87-97, October.
  10. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(5), pages 972-90, October.
  11. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
  12. Milgrom, Paul & Oster, Sharon, 1987. "Job Discrimination, Market Forces, and the Invisibility Hypothesis," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(3), pages 453-76, August.
  13. Kletzer, L., 1988. "Returns To Seniority After Permanent Job Loss," Department of Economics Working Papers 129, Department of Economics, Williams College.
  14. MacDonald, Glenn M, 1982. "A Market Equilibrium Theory of Job Assignment and Sequential Accumulation of Information," American Economic Review, American Economic Association, American Economic Association, vol. 72(5), pages 1038-55, December.
  15. Edward P. Lazear, 1984. "Raids and Offermatching," NBER Working Papers 1419, National Bureau of Economic Research, Inc.
  16. Fudenberg, Drew & Tirole, Jean, 1991. "Perfect Bayesian equilibrium and sequential equilibrium," Journal of Economic Theory, Elsevier, Elsevier, vol. 53(2), pages 236-260, April.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Will Today's Unemployed Become Tommorow's Unemployable?
    by Catherine Rampell in Economix on 2010-12-02 15:34:00
  2. [経済]今日の循環的失業者が明日の構造的失業者になる?
    by himaginary in himaginaryの日記 on 2010-12-15 08:00:00
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