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License to Fire? Unemployment Insurance and the Moral Cost of Layoffs

Author

Listed:
  • Keum, Daniel

    (Columbia Business School)

  • Meier, Stephan

    (Columbia University)

Abstract

Expanding unemployment insurance (UI) not only reduces the burden for the unemployed but also the moral cost of layoffs to firms and their managers. Using staggered expansions of UI across US states, we show that expanding UI leads to larger layoffs in firms experiencing negative economic shocks. The effects are stronger in weakly governed and financially unconstrained firms, where managers have greater discretion to avoid moral cost. This study presents moral cost as a novel microeconomic channel through which UI affects layoff decisions, which can compromise its effectiveness as a social insurance program and an automatic stabilizer.

Suggested Citation

  • Keum, Daniel & Meier, Stephan, 2020. "License to Fire? Unemployment Insurance and the Moral Cost of Layoffs," IZA Discussion Papers 13497, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp13497
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    More about this item

    Keywords

    managers; layoffs; unemployment insurance; prosocial behavior;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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