Paper #795

Títol:

Downsizing, job insecurity and firm reputation

Autors:

Doh-Shin Jeon i Joel Shapiro

Data:

Novembre 2004

Resum:

This paper studies how firms make layoff decisions in the presence of adverse shocks. In this uncertain environment, workers' expectations about their job security affect their on-the-job performance. This productivity effect on job insecurity forces firms to strike a balance between laying off redundant workers and maintaining survivors' commitment when deciding on the amount and timing of downsizing. This framework offers an explanation of conservative employment practices (such as zero or reduced layoffs) based on firms having private information about their future profits. High retention rates and wages can signal that the firm has a bright future, boosting workers' confidence. Moreover, the model provides clear predictions about when waves of downsizing will occur as opposed to one-time massive cuts.

Paraules clau:

Downsizing, layoffs, employment policies

Codis JEL:

J21, J23, D21, D82

Àrea de Recerca:

Microeconomia / Economia Laboral, Pública, de Desenvolupament i de la Salut

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