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Selective Firing and Lemons

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  • Michèle A. Weynandt

Abstract

This paper uses the Austrian Social Security Register (ASSD) to explore what information firms infer from the three common types of displacement: individual layoffs, individuals displaced due to a closure and individuals displaced due to a mass layoff. I bring together two strands of the literature, namely signaling and sorting and contribute to it in three ways. First I test whether the individual layoffs are the least productive, second I investigate whether individual layoffs are perceived as “lemons” (with a specific focus on the high ability individuals) and third I raise the question whether the “lemon” exists in the resulting matching pattern. Using the Abowd et al. (1999) model I show that the individual layoffs are the least productive measured by the person fixed effect. I confirm the signaling argument of Gibbons and Katz (1991) that individual layoffs are perceived as “lemons” also for high ability individuals, but I reject the argument of Gibbons and Katz (1991) against the matching model (Becker, 1973). Using three different measures of sorting, I find that the matching changes differentially for the different layoff groups. This leads to the tentative conclusion that both sorting and signaling take place after an individual job loss.

Suggested Citation

  • Michèle A. Weynandt, 2014. "Selective Firing and Lemons," NRN working papers 2014-05, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  • Handle: RePEc:jku:nrnwps:2014_05
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    Cited by:

    1. Becker, Sebastian & Jahn, Elke, 2015. "Labor Market Signaling and Unemployment Duration: Evidence from Germany," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112981, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    Labor Markets; Employment; Wages; Displacement;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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