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When are layoffs acceptable? Evidence from a quasi-experiment

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  • Gary Charness
  • David I. Levine

Abstract

Many authors have discussed a decline in internal labor markets and an apparent shift to a new employment contract, characterized by less commitment between employer and employee and more portable skills. These discussions occur without much evidence on what employment contract employees currently feel is fair. We perfomed quasi-experimental surveys to study when employees in the U.S. and Canada feel that layoffs are fair. Layoffs were perceived as more fair if they were due to lower product demand than if the result of employee suggestions. This result appears to be solely due to norms of reciprocity (companies should not punish employees for their efforts), rather than norms of sharing rents, as new technology was also considered a justification for layoffs. Consistent with theories of distributive and procedural equity, layoffs were perceived as more fair if the CEO voluntarily shared the pain. CEO bonuses due to layoffs lowered their reported fairness only slightly. Respondents in Silicon Valley were not more accepting of layoffs than were those in Canada on average, although the justifications considered valid differed slightly.

Suggested Citation

  • Gary Charness & David I. Levine, 1999. "When are layoffs acceptable? Evidence from a quasi-experiment," Economics Working Papers 369, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:369
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    Cited by:

    1. Jordi Brandts & Arno Riedl & Frans van Winden, 2004. "Competition and Well-Being," Tinbergen Institute Discussion Papers 04-041/1, Tinbergen Institute.
    2. Fischer, Sven & Güth, Werner, 2012. "Effects of exclusion on acceptance in ultimatum games," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1100-1114.
    3. Brandts, Jordi & Riedl, Arno & van Winden, Frans, 2009. "Competitive rivalry, social disposition, and subjective well-being: An experiment," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1158-1167, December.
    4. Charness, Gary & Levine, David I., 2002. "Changes in the employment contract?: Evidence from a quasi-experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 47(4), pages 391-405, April.
    5. Gerlach, Knut & Levine, David I. & Stephan, Gesine & Struck, Olaf, 2005. "The Acceptability of Layoffs and Pay Cuts: Comparing North America with Germany," Institute for Research on Labor and Employment, Working Paper Series qt1k21d0rg, Institute of Industrial Relations, UC Berkeley.
    6. repec:ebl:ecbull:eb-17-00049 is not listed on IDEAS
    7. Paul Walker, 2015. "Contracts, Entrepreneurs, Market Creation And Judgement: The Contemporary Mainstream Theory Of The Firm In Perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 29(2), pages 317-338, April.
    8. repec:iab:iabzaf:v:37:i:2:p:127-145 is not listed on IDEAS
    9. Paul, Maureen, 2006. "A cross-section analysis of the fairness-of-pay perception of UK employees," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(2), pages 243-267, April.
    10. Heinz, Matthias & Drzensky, Frank, 2013. "The Hidden Costs of Downsizing," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79764, Verein für Socialpolitik / German Economic Association.
    11. Gesine Stephan & Sven Uthmann, 2014. "Wann wird negative Reziprozität am Arbeitsplatz akzeptiert? Eine quasi-experimentelle Untersuchung," Working Paper Series in Economics 321, University of Lüneburg, Institute of Economics.
    12. Jordi Brandts & Gary Charness, 2003. "Truth or Consequences: An Experiment," Management Science, INFORMS, vol. 49(1), pages 116-130, January.
    13. Emmanuel Saez & Pascal Michaillat, 2013. "A Theory of Aggregate Supply and Aggregate Demand as Functions of Market Tightness with Prices as Parameters," 2013 Meeting Papers 1216, Society for Economic Dynamics.
    14. Jordi Brandts & Gary Charnes, "undated". "Retribution In A Cheap-Talk Experiment," UFAE and IAE Working Papers 454.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    15. Baxandall, Phineas, 2002. "Explaining differences in the political meaning of unemployment across time and space," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 31(5), pages 469-502.
    16. Andrea Bassanini & Eve Caroli & François Fontaine & Antoine Rebérioux, 2018. "Escaping Social Pressure: Fixed-Term Contracts in Multi-Establishment Firms," PSE Working Papers halshs-01724188, HAL.
    17. Kevin F. Hallock, 2009. "Job Loss and the Fraying of the Implicit Employment Contract," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 69-93, Fall.
    18. Pfeifer, Christian, 2005. "Fairness and the labour market; A theoretical and empirical analysis of layoffs in Germany," Hannover Economic Papers (HEP) dp-328, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    19. Pfeifer, Christian, 2004. "Fairness und Kündigungen : eine theoretische und empirische Analyse (Fairness and layoffs * a theoretical and empirical analysis)," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 37(2), pages 127-145.

    More about this item

    Keywords

    New employment contract; fairness; justifications; layoffs; survey; Leex;

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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