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Signaling in the Labor Market: New Evidence on Layoffs and Plant Closings

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Listed author(s):
  • Rodríguez-Planas, Núria

    ()

    (Queens College, CUNY)

Abstract

In my asymmetric-information model of layoffs, high-productivity workers are more likely to be recalled to their former employer and may choose to remain unemployed rather than to accept a low-wage job. In this case, unemployment can serve as a signal of productivity, and duration of unemployment may be positively related to post-laid-off wages even among workers who are not recalled. In contrast, because workers whose plant closed cannot be recalled, longer unemployment for them should not have a positive signaling benefit. Analysis of the data from the January 1988-2000 Displaced Workers Supplements to the Current Population Survey reveals that the wage/unemployment duration relation differs between laid-off workers and workers displaced through plant closings in the predicted way, and finds evidence consistent with asymmetric information in the U.S. labor market.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1009.

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Length: 61 pages
Date of creation: Feb 2004
Publication status: published in: Research in Labor Economics, 2013, 38
Handle: RePEc:iza:izadps:dp1009
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Keywords: laid-off workers; signaling; unemployment; wages;

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Find related papers by JEL classification:
  • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
  • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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  1. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
  2. Gibbons, Robert & Katz, Lawrence F, 1991. "Layoffs and Lemons," Journal of Labor Economics, University of Chicago Press, vol. 9(4), pages 351-380, October.
  3. Albert Ma, Ching-to & Weiss, Andrew M., 1993. "A signaling theory of unemployment," European Economic Review, Elsevier, vol. 37(1), pages 135-157, January.
  4. Lawrence F. Katz, 1986. "Layoffs, Recall and the Duration of Unemployment," NBER Working Papers 1825, National Bureau of Economic Research, Inc.
  5. Kletzer, Lori Gladstein, 1989. "Returns to Seniority after Permanent Job Loss," American Economic Review, American Economic Association, vol. 79(3), pages 536-543, June.
  6. Anderson, Patricia M, 1992. "Time-Varying Effects of Recall Expectation, a Reemployment Bonus, and Job Counseling on Unemployment Durations," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 99-115, January.
  7. Katharine G. Abraham & James L. Medoff, 1984. "Length of Service and Layoffs in Union and Nonunion Work Groups," ILR Review, Cornell University, ILR School, vol. 38(1), pages 87-97, October.
  8. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-176, February.
  9. Lawrence F. Katz & Bruce D. Meyer, 1990. "Unemployment Insurance, Recall Expectations, and Unemployment Outcomes," The Quarterly Journal of Economics, Oxford University Press, vol. 105(4), pages 973-1002.
  10. George Akerlof, 1976. "The Economics of Caste and of the Rat Race and Other Woeful Tales," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 599-617.
  11. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
  12. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
  13. Michael Podgursky & Paul Swaim, 1987. "Job Displacement and Earnings Loss: Evidence from the Displaced Worker Survey," ILR Review, Cornell University, ILR School, vol. 41(1), pages 17-29, October.
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Cited by:

  1. Carlos Henrique L.Corseuil & Rodrigo F.Dias, Miguel N. Foguel & Daniel D.Santos, 2009. "O Estigma da Perda de um Emprego Formal no Brasil," Discussion Papers 1446, Instituto de Pesquisa Econômica Aplicada - IPEA.
  2. Rodríguez-Planas, Núria, 2004. "Re-Employment Bonuses in a Signalling Model of Temporary Layoffs," IZA Discussion Papers 1010, Institute for the Study of Labor (IZA).

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