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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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:
Contact details of provider:
Postal: Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
Web page: http://www.sfu.ca/economics.html
More information through EDIRC
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, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - 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.:
- Robert Gibbons & Michael Waldman, 2006.
"Enriching a Theory of Wage and Promotion Dynamics inside Firms,"
Journal of Labor Economics,
University of Chicago Press, vol. 24(1), pages 59-108, January.
- Gibbons, Robert & Waldman, Michael, 2003. "Enriching a Theory of Wage and Promotion Dynamics Inside Firms," Working papers 4324-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Robert Gibbons & Michael Waldman, 2003. "Enriching a Theory of Wage and Promotion Dynamics Inside Firms," NBER Working Papers 9849, National Bureau of Economic Research, Inc.
- Iourii Manovskii & Gueorgui Kambourov, 2004.
"Occupational Specificity of Human Capital,"
2004 Meeting Papers
197, Society for Economic Dynamics.
- Michael Waldman, 1989.
"Up-or-Out Contracts: A Signaling Perspective,"
UCLA Economics Working Papers
556, UCLA Department of Economics.
- Robert Gibbons & Michael Waldman, 1999. "A Theory Of Wage And Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1321-1358, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Working Paper Coordinator).
If references are entirely missing, you can add them using this form.