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Re-Employment Bonuses in a Signalling Model of Temporary Layoffs

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  • Rodríguez-Planas, Núria

    (Queens College, CUNY)

Abstract

Temporary layoffs are an important feature of the United States labor market. If these employer-employee relationships exist because of valuable job-matches, unemployment among high-productivity laid-off workers may be optimal from societal perspective. However, because of asymmetric information, low-productivity workers may behave strategically, and choose unemployment instead of low-wage jobs, resulting in an inefficient level of unemployment. This paper shows that in such cases, a re-employment bonus may give the correct incentives to laid-off workers and achieve the optimal equilibrium. The paper analyzes the equity properties of such a policy and its cost effectiveness. Finally, the model fits the data and offers several policy implications.

Suggested Citation

  • Rodríguez-Planas, Núria, 2004. "Re-Employment Bonuses in a Signalling Model of Temporary Layoffs," IZA Discussion Papers 1010, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1010
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    References listed on IDEAS

    as
    1. Woodbury, Stephen A & Spiegelman, Robert G, 1987. "Bonuses to Workers and Employers to Reduce Unemployment: Randomized Trials in Illinois," American Economic Review, American Economic Association, vol. 77(4), pages 513-530, September.
    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. Meyer, Bruce D, 1996. "What Have We Learned from the Illinois Reemployment Bonus Experiment?," Journal of Labor Economics, University of Chicago Press, vol. 14(1), pages 26-51, January.
    4. Albert Ma, Ching-to & Weiss, Andrew M., 1993. "A signaling theory of unemployment," European Economic Review, Elsevier, vol. 37(1), pages 135-157, January.
    5. Lawrence F. Katz, 1986. "Layoffs, Recall and the Duration of Unemployment," NBER Working Papers 1825, National Bureau of Economic Research, Inc.
    6. repec:mpr:mprres:1134 is not listed on IDEAS
    7. Nuria Rodriguez-Planas, 2003. "Signaling in The Labor Market: New Evidence On Layoffs, and Plant Closings," William Davidson Institute Working Papers Series 2003-610, William Davidson Institute at the University of Michigan.
    8. Paul T. Decker & Christopher J. O'Leary, 1991. "An Analysis of Pooled Evidence from the Pennsylvania and Washington Reemployment Bonus Demonstrations," Mathematica Policy Research Reports 458eec364eac40c390e6d78c9, Mathematica Policy Research.
    9. Lawrence F. Katz & Bruce D. Meyer, 1990. "Unemployment Insurance, Recall Expectations, and Unemployment Outcomes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(4), pages 973-1002.
    10. Bruce D. Meyer, 1995. "Lessons from the U.S. Unemployment Insurance Experiments," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 91-131, March.
    11. Carl Davidson & Stephen A. Woodbury, 1996. "Unemployment Insurance and Unemployment Implications of the Reemployment Bonus Experiments," Book chapters authored by Upjohn Institute researchers, in: Advisory Council on Unemployment Compensation: Background Papers, volume 3, pages KK1-KK37, W.E. Upjohn Institute for Employment Research.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Liebig, Stefan & Hense, Andrea, 2007. "Bedingungen und Folgen betriebsbedingter Entlassungen mit anschließender Wiederbeschäftigung in Deutschland," Duisburger Beiträge zur soziologischen Forschung 4/2007, University of Duisburg-Essen, Institute of Sociology.
    2. Schmelzer, Paul, 2011. "Unemployment and occupational mobility at the beginning of employment career in Germany and the UK," IAB-Discussion Paper 201125, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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    More about this item

    Keywords

    temporary layoffs; signalling and re-employment bonus demonstrations; recall expectations; unemployment;
    All these keywords.

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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