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Pay cuts and layoffs in an experimental minimum effort coordination game

Author

Listed:
  • Ananish Chaudhuri

    (University of Auckland)

  • Tony So

    (Xi'an Jiaotong Liverpool University)

  • Erwann Sbai

    (University of Auckland)

Abstract

It is well-documented that during recessions, businesses prefer to lay off workers rather than implement across the board pay cuts. We examine the impact of pay cuts versus layoffs on intra-organization coordination, which is a fundamental problem facing firms involved in team production, by looking at behavior in the minimum effort coordination game following an intervention. Our results suggest that, contrary to received wisdom, both pay cuts and layoffs foster better coordination success. In particular, we do not find that pay cuts are detrimental to intra-organization coordination.

Suggested Citation

  • Ananish Chaudhuri & Tony So & Erwann Sbai, 2017. "Pay cuts and layoffs in an experimental minimum effort coordination game," Economics Bulletin, AccessEcon, vol. 37(3), pages 2181-2197.
    • Handle: RePEc:ebl:ecbull:eb-17-00049
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    References listed on IDEAS

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    More about this item

    Keywords

    Pay cuts; Layoffs; Weak-link games; Coordination; Experiments;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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