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Two-Sided Learning with Applications to Labor Turnover and Worker Displacement

Listed author(s):
  • Pfann Gerard A.

    ()

    (Department of Quantitative Economics, Department of Organization & Strategy, Faculty of Economics and Business Administration, Maastricht University, P.O. Box 6 16, 6200 MD Maastricht, The Netherlands)

  • Hamermesh Daniel S.

    ()

    (Sue Killam Professor in the Foundations of Economics, University of Texas at Austin, Austin, TX 78712-1173, USA)

We make several extensions to the recent literature on job loss while modernizing the very early job-displacement literature. After constructing a dynamic model of two-sided learning between a firm and its workers, we estimate it using personnel data from Fokker Aircraft that cover the path of layoffs and quits through its bankruptcy in March 1996. We find that the firm learns about workers' loyalty (demonstrating the role of information in repeated cooperative principal- agent relationships), while workers do not learn (consistent with earlier empirical results on American workers). The type of data that we use also generates information on the value of learning and on whether and how the characteristics of workers who remain until the firm's death differ from those of all affected workers. It thus allows us to measure the increases in the firm's value from learning about its workers' behavior and to infer the extent of biases in estimating losses from displacement from samples restricted to displaced workers.

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Article provided by De Gruyter in its journal Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik).

Volume (Year): 228 (2008)
Issue (Month): 5-6 (October)
Pages: 423-445

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Handle: RePEc:jns:jbstat:v:228:y:2008:i:5-6:p:423-445
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References listed on IDEAS
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  1. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, vol. 79(4), pages 674-689, September.
  2. Radner, Roy, 1981. "Monitoring Cooperative Agreements in a Repeated Principal-Agent Relationship," Econometrica, Econometric Society, vol. 49(5), pages 1127-1148, September.
  3. Pfann, Gerard A., 2001. "Options to quit," Economics Letters, Elsevier, vol. 70(2), pages 259-265, February.
  4. Patrick Francois & Joanne Roberts, 2003. "Contracting Productivity Growth," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 59-85.
  5. Robert H. Topel & Michael P. Ward, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 439-479.
  6. Pfann, Gerald A. & Verspagen, Bart, 1989. "The structure of adjustment costs for labour in the Dutch manufacturing sector," Economics Letters, Elsevier, vol. 29(4), pages 365-371.
  7. Burda, Michael C. & Mertens, Antje, 2001. "Estimating wage losses of displaced workers in Germany," Labour Economics, Elsevier, vol. 8(1), pages 15-41, January.
  8. Kletzer, Lori Gladstein, 1989. "Returns to Seniority after Permanent Job Loss," American Economic Review, American Economic Association, vol. 79(3), pages 536-543, June.
  9. Felli, Leonardo & Harris, Christopher, 1996. "Learning, Wage Dynamics, and Firm-Specific Human Capital," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 838-868, August.
  10. Hogan, Chad, 2001. "Enforcement of Implicit Employment Contracts through Unionization," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 171-195, January.
  11. Daniel S. Hamermesh, 1987. "The Costs of Worker Displacement," The Quarterly Journal of Economics, Oxford University Press, vol. 102(1), pages 51-75.
  12. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," Econometrica, Econometric Society, vol. 66(5), pages 1017-1098, September.
  13. Joseph G. Altonji & Charles R. Pierret, 2001. "Employer Learning and Statistical Discrimination," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 313-350.
  14. Bruce C. Fallick, 1996. "A Review of the Recent Empirical Literature on Displaced Workers," ILR Review, Cornell University, ILR School, vol. 50(1), pages 5-16, October.
  15. Stiglitz, Joseph E & Weiss, Andrew, 1983. "Incentive Effects of Terminations: Applications to the Credit and Labor Markets," American Economic Review, American Economic Association, vol. 73(5), pages 912-927, December.
  16. McLaughlin, Kenneth J, 1991. "A Theory of Quits and Layoffs with Efficient Turnover," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 1-29, February.
  17. Gerard A. Pfann, 2006. "Downsizing and Heterogeneous Firing Costs," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 158-170, February.
  18. Henry S. Farber & Robert Gibbons, 1996. "Learning and Wage Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1007-1047.
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