IDEAS home Printed from https://ideas.repec.org/p/zbw/vfsc13/79764.html
   My bibliography  Save this paper

The Hidden Costs of Downsizing

Author

Listed:
  • Heinz, Matthias
  • Drzensky, Frank

Abstract

We analyze whether a principal s decision to layoff an agent affects the performance of the surviving agents. To study the impact of the decision in isolation, we conducted an experimental principal-agent game. We find that agents reduce their performance by 37% as a response to the decision. Heterogeneity in principals decisions can largely be explained by different beliefs about how agents react to layoffs.

Suggested Citation

  • Heinz, Matthias & Drzensky, Frank, 2013. "The Hidden Costs of Downsizing," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79764, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc13:79764
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/79764/1/VfS_2013_pid_255.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Falk, Armin & Fischbacher, Urs, 2006. "A theory of reciprocity," Games and Economic Behavior, Elsevier, vol. 54(2), pages 293-315, February.
    2. Charness, Gary & Cobo-Reyes, Ramón & Jiménez, Natalia, 2008. "An investment game with third-party intervention," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 18-28, October.
    3. Richard B. Freeman & Edward P. Lazear, 1995. "An Economic Analysis of Works Councils," NBER Chapters, in: Works Councils: Consultation, Representation, and Cooperation in Industrial Relations, pages 27-52, National Bureau of Economic Research, Inc.
    4. Goerke, Laszlo & Pannenberg, Markus, 2011. "Trade union membership and dismissals," Labour Economics, Elsevier, vol. 18(6), pages 810-821.
    5. Brockner, Joel & Davy, Jeanette & Carter, Carolyn, 1985. "Layoffs, self-esteem, and survivor guilt: Motivational, affective, and attitudinal consequences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 36(2), pages 229-244, October.
    6. Jeon, Doh-Shin & Laffont, Jean-Jacques, 1999. "The Efficient Mechanism for Downsizing the Public Sector," The World Bank Economic Review, World Bank, vol. 13(1), pages 67-88, January.
    7. Gary Charness & David I. Levine, 2000. "When are Layoffs Acceptable? Evidence from a Quasi-Experiment," ILR Review, Cornell University, ILR School, vol. 53(3), pages 381-400, April.
    8. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, vol. 47(2), pages 268-298, May.
    9. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 817-868.
    10. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    11. Daniel Sullivan & Till von Wachter, 2009. "Job Displacement and Mortality: An Analysis Using Administrative Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(3), pages 1265-1306.
    12. Friebel, Guido & Heinz, Matthias, 2014. "Media slant against foreign owners: Downsizing," Journal of Public Economics, Elsevier, vol. 120(C), pages 97-106.
    13. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    14. Ben Greiner, 2004. "The Online Recruitment System ORSEE 2.0 - A Guide for the Organization of Experiments in Economics," Working Paper Series in Economics 10, University of Cologne, Department of Economics.
    15. David Gill & Victoria Prowse, 2012. "A Structural Analysis of Disappointment Aversion in a Real Effort Competition," American Economic Review, American Economic Association, vol. 102(1), pages 469-503, February.
    16. Tore Ellingsen & Magnus Johannesson, 2008. "Pride and Prejudice: The Human Side of Incentive Theory," American Economic Review, American Economic Association, vol. 98(3), pages 990-1008, June.
    17. David K. Levine, 1998. "Modeling Altruism and Spitefulness in Experiment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 593-622, July.
    18. Fehr, Ernst & Schmidt, Klaus M., 2006. "The Economics of Fairness, Reciprocity and Altruism - Experimental Evidence and New Theories," Handbook on the Economics of Giving, Reciprocity and Altruism, in: S. Kolm & Jean Mercier Ythier (ed.), Handbook of the Economics of Giving, Altruism and Reciprocity, edition 1, volume 1, chapter 8, pages 615-691, Elsevier.
    19. Kerwin Kofi Charles & Melvin Stephens, 2004. "Job Displacement, Disability, and Divorce," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 489-522, April.
    20. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
    21. Björn Bartling & Urs Fischbacher, 2012. "Shifting the Blame: On Delegation and Responsibility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 67-87.
    22. Stevens, Ann Huff, 1997. "Persistent Effects of Job Displacement: The Importance of Multiple Job Losses," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 165-188, January.
    23. Mari Rege & Kjetil Telle & Mark Votruba, 2011. "Parental Job Loss and Children's School Performance," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(4), pages 1462-1489.
    24. Offerman, Theo, 2002. "Hurting hurts more than helping helps," European Economic Review, Elsevier, vol. 46(8), pages 1423-1437, September.
    25. Dohmen, Thomas J. & Pfann, Gerard A., 2004. "Worker separations in a nonstationary corporate environment," European Economic Review, Elsevier, vol. 48(3), pages 645-663, June.
    26. Ernst Fehr & Urs Fischbacher, "undated". "Third Party Punishment and Social Norms," IEW - Working Papers 106, Institute for Empirical Research in Economics - University of Zurich.
    27. Robert D. Nixon & Michael A. Hitt & Ho‐Uk Lee & Eui Jeong, 2004. "Market reactions to announcements of corporate downsizing actions and implementation strategies," Strategic Management Journal, Wiley Blackwell, vol. 25(11), pages 1121-1129, November.
    28. Browning, Martin & Heinesen, Eskil, 2012. "Effect of job loss due to plant closure on mortality and hospitalization," Journal of Health Economics, Elsevier, vol. 31(4), pages 599-616.
    29. Ben Greiner, 2004. "The Online Recruitment System ORSEE - A Guide for the Organization of Experiments in Economics," Papers on Strategic Interaction 2003-10, Max Planck Institute of Economics, Strategic Interaction Group.
    30. Alain Cohn & Ernst Fehr & Benedikt Herrmann & Frédéric Schneider, 2011. "Social comparison in the workplace: evidence from a field experiment," ECON - Working Papers 007, Department of Economics - University of Zurich.
    31. Joel Rogers & Wolfgang Streeck, 1995. "Works Councils: Consultation, Representation, and Cooperation in Industrial Relations," NBER Books, National Bureau of Economic Research, Inc, number roge95-1.
    32. Fuss, Catherine, 2009. "What is the most flexible component of wage bill adjustment? Evidence from Belgium," Labour Economics, Elsevier, vol. 16(3), pages 320-329, June.
    33. Kristiina Huttunen & Jarle Møen & Kjell G. Salvanes, 2011. "How Destructive Is Creative Destruction? Effects Of Job Loss On Job Mobility, Withdrawal And Income," Journal of the European Economic Association, European Economic Association, vol. 9(5), pages 840-870, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. What did tax cuts do?
      by chris dillow in Stumbling and Mumbling on 2014-02-06 20:14:51

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gerald Eisenkopf & Urs Fischbacher, 2015. "Naïve Responses to Kind Delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 36(7), pages 487-498, October.
    2. Kerschbamer, Rudolf, 2015. "The geometry of distributional preferences and a non-parametric identification approach: The Equality Equivalence Test," European Economic Review, Elsevier, vol. 76(C), pages 85-103.
    3. Klaus M. Schmidt & Martin Spann & Robert Zeithammer, 2015. "Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets," Management Science, INFORMS, vol. 61(6), pages 1217-1236, June.
    4. Leibbrandt, Andreas & López-Pérez, Raúl, 2012. "An exploration of third and second party punishment in ten simple games," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 753-766.
    5. Christian Thoeni & Simon Gaechter, 2011. "Peer Effects and Social Preferences in Voluntary Cooperation," Discussion Papers 2011-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    6. Felix Koelle, 2012. "Heterogeneity and Cooperation in Privileged Groups: The Role of Capability and Valuation on Public Goods Provision," Cologne Graduate School Working Paper Series 03-08, Cologne Graduate School in Management, Economics and Social Sciences.
    7. Yingchao Zhang & Oliver Fabel & Christian Thomann, 2015. "Pay inequity effects on back-office employees’ job performances: the case of a large insurance firm," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 23(2), pages 421-439, June.
    8. López-Pérez, Raúl, 2008. "Aversion to norm-breaking: A model," Games and Economic Behavior, Elsevier, vol. 64(1), pages 237-267, September.
    9. Goeschl, Timo & Jarke, Johannes, 2013. "Second vs. Third Party Punishment under Costly Monitoringː A New Experimental Method and Evidence," WiSo-HH Working Paper Series 6, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory.
    10. Christian Thoeni & Simon Gaechter, 2011. "Peer Effects and Social Preferences in Voluntary Cooperation," Discussion Papers 2011-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    11. Billur Aksoy & Silvana Krasteva, 2020. "When does less information translate into more giving to public goods?," Experimental Economics, Springer;Economic Science Association, vol. 23(4), pages 1148-1177, December.
    12. Daniel Woods & Maroš Servátka, 2019. "Nice to you, nicer to me: Does self-serving generosity diminish the reciprocal response?," Experimental Economics, Springer;Economic Science Association, vol. 22(2), pages 506-529, June.
    13. Friehe, Tim & Utikal, Verena, 2018. "Intentions under cover – Hiding intentions is considered unfair," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 73(C), pages 11-21.
    14. Bartling, Björn & Fischbacher, Urs & Schudy, Simeon, 2015. "Pivotality and responsibility attribution in sequential voting," Journal of Public Economics, Elsevier, vol. 128(C), pages 133-139.
    15. Halbheer, Daniel & Fehr, Ernst & Goette, Lorenz & Schmutzler, Armin, 2009. "Self-reinforcing market dominance," Games and Economic Behavior, Elsevier, vol. 67(2), pages 481-502, November.
    16. Maroš Servátka & Steven Tucker & Radovan Vadovič, 2011. "Building Trust—One Gift at a Time," Games, MDPI, vol. 2(4), pages 1-22, September.
    17. Randolph Sloof & Ferdinand von Siemens, 2015. "Decision Initiation, Decision Implementation, and the Allocation of Decision Rights," CESifo Working Paper Series 5509, CESifo.
    18. Bartling Björn & Grieder Manuel & Zehnder Christian, 2014. "Does competition justify inequality?," ECON - Working Papers 158, Department of Economics - University of Zurich, revised Nov 2015.
    19. Reuben, Ernesto & Riedl, Arno, 2013. "Enforcement of contribution norms in public good games with heterogeneous populations," Games and Economic Behavior, Elsevier, vol. 77(1), pages 122-137.
    20. Gerald Eisenkopf, 2015. "Unequal Incentives and Perceived Fairness in Groups," Working Paper Series of the Department of Economics, University of Konstanz 2015-03, Department of Economics, University of Konstanz.

    More about this item

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc13:79764. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/vfsocea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.