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When are layoffs acceptable? Evidence from a quasi-experiment

  • Gary Charness
  • David I. Levine

If, as has been widely suggested, internal labor markets are declining and a new employment contract with reduced employer-employee commitment is emerging, the criteria by which employees judge layoffs as fair or unfair may be changing. This paper presents findings relevant to that question, based on quasi-experimental surveys in Canada and the United States. Respondents rated layoffs stemming from reduced product demand as more fair than those resulting from employee suggestions. Behind this judgment, apparently, was the normative premise that companies should not punish employees for their efforts; rent-sharing norms appear to have played little or no role, as respondents deemed new technology an acceptable reason for layoffs. Consistent with theories of distributive and procedural equity, layoffs were perceived as more fair if the CEO voluntarily "shared the pain." Respondents in Silicon Valley were not more accepting of layoffs than were those in Canada, on average. (Abstract courtesy JSTOR.)

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Article provided by ILR Review, Cornell University, ILR School in its journal ILR Review.

Volume (Year): 53 (2000)
Issue (Month): 3 (April)
Pages: 381-400

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Handle: RePEc:ilr:articl:v:53:y:2000:i:3:p:381-400
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  1. Chaness, G. & Levine, D.I., 1999. "Changes in the Employment Contract? Evidence from a Quasi-Experiment," Papers 70, California Berkeley - Institute of Industrial Relations.
  2. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
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  8. 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.
  9. 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.
  10. David Card & Richard B. Freeman, 1993. "Introduction to "Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States"," NBER Chapters, in: Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, pages 1-20 National Bureau of Economic Research, Inc.
  11. 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.
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