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The Value of Layoffs and Labor Market Conditions as Signals of Worker Quality

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  • Kosovich Stephen M

    (Stephen F Austin State University)

Abstract

Empirical studies in the job displacement literature have found that workers face significant earnings losses on average when they are permanently displaced from jobs. Previous work also finds that the costliness of job loss varies widely and that some of this variation may result from the differences between layoffs and plant closings. Layoffs provide hiring firms worker specific information about productivity but plant closings do not. This paper extends the understanding of the costs of job loss by presenting a theoretical motivation that indicates that labor market conditions can influence the information contained in a layoff. The empirical results from the Displaced Worker Supplement support this model and suggest that when the local unemployment rate is high, less information is transmitted by a layoff concerning worker quality, for the sample of white-collar workers.

Suggested Citation

  • Kosovich Stephen M, 2010. "The Value of Layoffs and Labor Market Conditions as Signals of Worker Quality," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-22, March.
    • Handle: RePEc:bpj:bejeap:v:10:y:2010:i:1:n:25
    DOI: 10.2202/1935-1682.2213
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    References listed on IDEAS

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    Cited by:

    1. Sushant Acharya & Shu Lin Wee, 2020. "Rational Inattention in Hiring Decisions," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(1), pages 1-40, January.

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