The Layoff Rat Race
AbstractWe investigate how discretionary investments in general and specific human capital are affected by the possibility of layoffs. After investments are made, firms may have to lay off workers, and will do so in inverse order of the profit that each worker generates. Greater skill investments, especially in specific human capital contribute more to a firm's bottom line, so that workers who make those investments will be laid off last. We show that, as long as workers' bargaining positions are not too weak, to reduce layoff probabilities, workers invest in specific human capital. Indeed, workers over-invest in skill acquisition from a social perspective whenever their bargaining power is strong enough, even though they only receive a share of any investment. More generally, we characterize how equilibrium skill investments are affected by the distribution of worker abilities within firms, the probability that a firm downsizes, and the distribution of employment opportunities in the economy.
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Bibliographic InfoPaper provided by Department of Economics, Simon Fraser University in its series Discussion Papers with number dp07-06.
Date of creation: May 2007
Date of revision:
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Postal: Working Paper Coordinator, Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
Other versions of this item:
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-19 (All new papers)
- NEP-BEC-2007-05-19 (Business Economics)
- NEP-LAB-2007-05-19 (Labour Economics)
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.:
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