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Downsizing as a sorting device. Are low-productive workers more likely to leave downsizing firms?




Employers cannot always displace workers at their own discretion. In many countries, Employment Protection Legislation (EPL) includes restrictions on laying off workers. This paper studies whether employers use downsizing events, where the rules for dismissal differ from the rules that apply for individual dismissal, to displace workers selectively. We investigate empirically whether workers with low expected productivity relative to co-workers face particularly high exit risks when establishments downsize. Our evidence is consistent with establishments using downsizings as a sorting device to terminate the employment of the least profitable workers who are protected against dismissal under normal times of operation. However, only a minor share of the displacements in downsizings may be attributed to opportunistic sorting by employers, suggesting that EPL may not be an important obstacle to firms' firing of individual workers.

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  • Morten Henningsen & Torbjørn Hægeland, 2008. "Downsizing as a sorting device. Are low-productive workers more likely to leave downsizing firms?," Discussion Papers 543, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:543

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    References listed on IDEAS

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    Cited by:

    1. Goerke, Laszlo & Pannenberg, Markus, 2015. "Trade union membership and sickness absence: Evidence from a sick pay reform," Labour Economics, Elsevier, vol. 33(C), pages 13-25.
    2. Østhus, Ståle & Mastekaasa, Arne, 2010. "The impact of downsizing on remaining workers' sickness absence," Social Science & Medicine, Elsevier, vol. 71(8), pages 1455-1462, October.

    More about this item


    Downsizing; sickness absence; employment protection;

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • 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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