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Selective Firing and Lemons

  • Michèle A. Weynandt
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    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.

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    File URL: http://www.labornrn.at/wp/2014/wp1405.pdf
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    Paper provided by The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria in its series NRN working papers with number 2014-05.

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    Length: 48 pages
    Date of creation: Mar 2014
    Date of revision:
    Handle: RePEc:jku:nrnwps:2014_05
    Contact details of provider: Postal: NRN Labor Economics and the Welfare State, c/o Rudolf Winter-Ebmer, Altenbergerstr. 69, 4040 Linz
    Phone: +43-732-2468-8216
    Fax: +43-732-2468-8217
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    1. Jan Eeckhout & Philipp Kircher, 2011. "Identifying Sorting--In Theory," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 872-906.
    2. Hu, Luojia & Taber, Christopher, 2005. "Layoffs, Lemons, Race and Gender," IZA Discussion Papers 1702, Institute for the Study of Labor (IZA).
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      • Josef Zweimüller & Rudolf Winter-Ebmer & Rafael Lalive & Andreas Kuhn & Jean-Philippe Wuellrich & Oliver Ruf & Simon Büchi, 2009. "Austrian Social Security Database," NRN working papers 2009-03, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
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    20. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
    21. Song, Younghwan, 2007. "Recall bias in the displaced workers survey: Are layoffs really lemons?," Labour Economics, Elsevier, vol. 14(3), pages 335-345, June.
    22. Daniel Sullivan & Till von Wachter, 2007. "Mortality, Mass-Layoffs, and Career Outcomes: An Analysis using Administrative Data," NBER Working Papers 13626, National Bureau of Economic Research, Inc.
    23. Card, David & Cardoso, Ana Rute & Kline, Patrick, 2013. "Bargaining and the Gender Wage Gap: A Direct Assessment," IZA Discussion Papers 7592, Institute for the Study of Labor (IZA).
    24. Haskel, Jonathan & Hawkes, Denise & Pereira, Sonia, 2005. "Skills, human capital and the plant productivity gap: UK evidence from matched plant, worker and workforce data," CEPR Discussion Papers 5334, C.E.P.R. Discussion Papers.
    25. Rasmus Lentz & Dale T. Mortensen, 2010. "Labor Market Models of Worker and Firm Heterogeneity," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 577-602, 09.
    26. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-20.
    27. Martina Fink & Esther Segalla & Andrea Weber & Christine Zulehner, 2010. "Extracting Firm Information from Administrative Records: The ASSD Firm Panel," NRN working papers 2010-04, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
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