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Layoffs, Lemons, Race and Gender

  • Hu, Luojia


    (Federal Reserve Bank of Chicago)

  • Taber, Christopher


    (University of Wisconsin-Madison)

This paper expands on Gibbons and Katz (1991) by looking at how the difference in wage losses across plant closing and layoff varies with race and gender. We find that the differences between white males and the other groups are striking and complex. The lemons effect of layoff holds for white males as in Gibbons and Katz model, but not for the other three demographic groups (white females, black females, and black males). These three all experience a greater decline in earnings at plant closings than at layoffs. This results from two reinforcing effects. First, plant closings have substantially more negative effects on minorities than on whites. Second, layoffs seem to have more negative consequences for white men than the other groups. We also find that the relative wage losses of blacks following layoffs increased after the Civil Rights Act of 1991 which we take as suggestive of an informational effect of layoff as in Gibbons and Katz. The results are suggestive that the large losses that African Americans experience at plant closing could result from heterogeneity in taste discrimination across firms.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1702.

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Length: 28 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1702
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  1. 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.
  2. Richard Startz & Lundberg, . "Private Discrimination and Social Intervention in Competitive Labor Markets," Rodney L. White Center for Financial Research Working Papers 19-81, Wharton School Rodney L. White Center for Financial Research.
  3. Joseph G. Altonji & Charles R. Pierret, . "Employer Learning and Statistical Discrimination," IPR working papers 97-18, Institute for Policy Resarch at Northwestern University.
  4. Robert Gibbons & Lawrence Katz, 1989. "Layoffs and Lemons," NBER Working Papers 2968, National Bureau of Economic Research, Inc.
  5. Coate, Stephen & Loury, Glenn C, 1993. "Will Affirmative-Action Policies Eliminate Negative Stereotypes?," American Economic Review, American Economic Association, vol. 83(5), pages 1220-40, December.
  6. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
  7. Dennis J. Aigner & Glen G. Cain, 1977. "Statistical Theories of Discrimination in Labor Markets," ILR Review, Cornell University, ILR School, vol. 30(2), pages 175-187, January.
  8. Phelps, Edmund S, 1972. "The Statistical Theory of Racism and Sexism," American Economic Review, American Economic Association, vol. 62(4), pages 659-61, September.
  9. Altonji, Joseph G. & Blank, Rebecca M., 1999. "Race and gender in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 48, pages 3143-3259 Elsevier.
  10. Harry Krashinsky, 2002. "Evidence on Adverse Selection and Establishment Size in the Labor Market," ILR Review, Cornell University, ILR School, vol. 56(1), pages 84-96, October.
  11. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 2, number 9780226041162, July.
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