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When are Layoffs Acceptable? Evidence from a Quasi-experiment

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Author Info
Gary Charness
David I. Levine

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Abstract

Many authors have discussed a decline in internal labor markets and an apparent shift to a new employment contract, characterized by less commitment between employer and employee and more portable skills. These discussions occur without much evidence on what employment contract employees currently feel is fair. We perfomed quasi-experimental surveys to study when employees in the U.S. and Canada feel that layoffs are fair. Layoffs were perceived as more fair if they were due to lower product demand than if the result of employee suggestions. This result appears to be solely due to norms of reciprocity (companies should not punish employees for their efforts), rather than norms of sharing rents, as new technology was also considered a justification for layoffs. Consistent with theories of distributive and procedural equity, layoffs were perceived as more fair if the CEO voluntarily shared the pain. CEO bonuses due to layoffs lowered their reported fairness only slightly. Respondents in Silicon Valley were not more accepting of layoffs than were those in Canada on average, although the justifications considered valid differed slightly.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 369.

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Date of creation: Mar 1999
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Handle: RePEc:upf:upfgen:369

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Related research
Keywords: New employment contract; fairness; justifications; layoffs; survey; Leex;

Other versions of this item:

Find related papers by JEL classification:
A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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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.:
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  3. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May. [Downloadable!] (restricted)
  4. MacKenzie, Scott B. & Podsakoff, Philip M. & Fetter, Richard, 1991. "Organizational citizenship behavior and objective productivity as determinants of managerial evaluations of salespersons' performance," Organizational Behavior and Human Decision Processes, Elsevier, vol. 50(1), pages 123-150, October. [Downloadable!] (restricted)
  5. Fehr, Ernst & Kirchsteiger, George & Riedl, Arno, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 437-59, May. [Downloadable!] (restricted)
  6. Dial, Jay & Murphy, Kevin J., 1995. "Incentives, downsizing, and value creation at General Dynamics," Journal of Financial Economics, Elsevier, vol. 37(3), pages 261-314, March. [Downloadable!] (restricted)
  7. Chaness, G. & Levine, D.I., 1999. "Changes in the Employment Contract? Evidence from a Quasi-Experiment," Papers 70, California Berkeley - Institute of Industrial Relations.
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  8. Henry S. Farber, 1995. "Are Lifetime Jobs Disappearing? Job Duration in the United States: 1973-1993," Working Papers 720, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  9. Henry S. Farber, 1995. "Are Lifetime Jobs Disappearing? Job Duration in the United States: 1973-1993," NBER Working Papers 5014, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Gorman, Raymond F & Kehr, James B, 1992. "Fairness as a Constraint on Profit Seeking: Comment," American Economic Review, American Economic Association, vol. 82(1), pages 355-58, March. [Downloadable!] (restricted)
  11. repec:fth:prinin:341 is not listed on IDEAS
  12. David Neumark & Daniel Polsky & Daniel Hansen, 1997. "Has Job Stability Declined Yet? New Evidence for the 1990's," NBER Working Papers 6330, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September. [Downloadable!] (restricted)
  14. Gary Charness, 1996. "Attribution and Reciprocity in a Simulated Labor Market: An Experimental Investigation," Economics Working Papers 283, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 1997. [Downloadable!]
  15. Levine, David I, 1993. "Fairness, Markets, and Ability to Pay: Evidence from Compensation Executives," American Economic Review, American Economic Association, vol. 83(5), pages 1241-59, December. [Downloadable!] (restricted)
  16. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December. [Downloadable!] (restricted)
  17. Campbell, Carl M, III & Kamlani, Kunal S, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 759-89, August.
Full references

Cited by:
(explanations, 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.)

  1. Jordi Brandts & Gary Charnes, . "Retribution In A Cheap-Talk Experiment," UFAE and IAE Working Papers 454.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  2. Jordi Brandts & Arno Riedl & Frans van Winden, 2004. "Competition and Well-Being," Tinbergen Institute Discussion Papers 04-041/1, Tinbergen Institute. [Downloadable!]
    Other versions:
  3. Christian Pfeifer, 2007. "The Perceived Fairness of Layoffs in Germany: Participation, Compensation, or Avoidance?," Journal of Business Ethics, Springer, vol. 74(1), pages 25-36, August. [Downloadable!] (restricted)
  4. Pfeifer, Christian, 2005. "Fairness and the labour market; A theoretical and empirical analysis of layoffs in Germany," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-328, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  5. Sohr, Tatjana, 2005. "Wenn die Karriereleiter wegbricht: Fairness und der Abbau von Hierarchieebenen (When the vareer ladder is removed * fairness and the elimination of hierarchical levels)," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 38(1), pages 68-86. [Downloadable!]
  6. Jordi Brandts & Gary Charness, 1999. "Retribution in a Cheap-talk Experiment," Economics Working Papers 437, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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