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When are Layoffs Acceptable? Evidence from a Quasi-Experiment

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  • Gary Charness
  • David I. Levine

Abstract

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.

Suggested Citation

  • Gary Charness & David I. Levine, 2000. "When are Layoffs Acceptable? Evidence from a Quasi-Experiment," ILR Review, Cornell University, ILR School, vol. 53(3), pages 381-400, April.
    • Handle: RePEc:sae:ilrrev:v:53:y:2000:i:3:p:381-400
    DOI: 10.1177/001979390005300302
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    More about this item

    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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