The long-run cost of job loss as measured by consumption changes

We consider the measurement of the cost of job displacement. With a Canadian panel survey we compare the consumption growth of households that experienced a permanent layoff to a control group of households that experienced a temporary layoff with known recall date. Because the firms employing the latter group are providing insurance, these workers approximate a benchmark of full insurance against job loss shocks. We estimate that permanent layoffs experience an average consumption loss of between 4% and 10%. Older workers and workers with high job tenure have losses closer to the top of this range.     

Recall bias in the displaced workers survey: Are layoffs really lemons?

This paper examines how the extent of recall bias in the Displaced Workers Surveys affects the often-cited empirical results found by Gibbons and Katz [Gibbons, R., Katz, L.F., 1991. Layoffs and lemons. Journal of Labor Economics 9 (4), 351−380] for the lemons effect of layoffs. Their finding that workers displaced by layoffs experience larger wage losses than do those displaced by plant closings is not due to the stigma attached to the layoff events. Rather it partly stems from recall bias in the 1984 and 1986 DWS, but mostly reflects the fact that workers displaced by layoffs have significantly higher predisplacement wage-tenure profiles than do those displaced by plant closings, while there is no such difference in postdisplacement wage-tenure profiles. A similar analysis using the 2000 and 2002 DWS shows that predisplacement wage losses are not different between workers displaced by layoffs and those displaced by plant closings.     

Learning from the alien: knowledge relationships with temporary workers in network contexts

This paper contributes to our understanding of the role of temporary workers in learning for innovation in network contexts. The strategy literature advocates that the knowledge and talent of workers is vital to competitive success yet at the same time temporary workers are becoming more prevalent, making relationships with workers more ephemeral. These shifting competitive and employment contexts make insights into learning from, and with, contractual nomads paramount. The setting is the UK television industry, where such workers are dominant. Internationally, creative industries are a prime site of networks where temporary workers are brought together for specific projects. In the television industry, a range of knowledge attachment employee relationships have been developed by firms to ‘contain’ and sustain worker contributions in terms of knowledge and talent. These relationships are identified as freelance, regular contract, golden handcuffs and invest in knowledge firm. This paper highlights the learning implications both positive and negative arising from these different ways of relating to temporary workers thereby extending our understanding of employee relationships built on mutuality.     

On recalls, layoffs, variable hours, and labor adjustment costs

The paper analyzes the employment policy of a firm that can vary both hours and the level of employment. The analysis differs from previous work in the adjustment cost literature in that the firm is able to change its employment not only through hires, layoffs, and quits, but also by recalls of employees who were previously laid off. Thus, we introduce the possibility of the firm inventorying the labor input. It is shown that this labor inventory potential is necessary if the firm is to ever lay off workers. Further, it is demonstrated that linear rather than strictly convex adjustment costs are then required if the firm is to always recall employees who were previously laid off prior to hiring new workers.     

Institutions and preferences in settings of causal complexity: foreign institutional investors and corporate restructuring practices in France

In this article, we illustrate how the interaction between institutional arrangements and the presence of different categories of firm stakeholders with specific preferences provides important insights to understand the conditions under which corporate restructuring practices are introduced. Institutions shape the range of actors' strategic options and mediate the translation of the preferences of firm stakeholders into corporate policies. Nonetheless, strategic choice remains possible since firm stakeholders constitute subgroups with different interests and incentives that influence how they operate in an institutional framework. In particular, we examine under what conditions UK/US-based institutional investors and equity-based compensation incentives are associated with the implementation of asset divestitures and employee layoffs in France. We uncover three key findings. First, the presence of hedge funds and equity-based pay influence the likelihood of French companies undertaking asset divestitures. Second, the impact of hedge funds on employee layoffs is contingent on the ownership structure of firms. Third, layoffs in France are driven by inferior performance – a result that contrasts with the American experience whereby employee layoffs are also used as a strategic mechanism to deal with institutional investors in good times. Our findings demonstrate the importance of the institutional constraints of (national level) employment protection and the moderating effects of ownership structure (firm level) on the strategic and employment policies of French companies.     

Just laid off,but still a “good citizen?” only if the process is fair

Recent United States Congress legislation (the WARN Act of 1988) mandates that organizations must provide at least 60 days notice before a layoff of 50 or more employees can be instituted. As a consequence, individuals who are notified of their layoff often remain in their jobs for a significant period of time-and managers hope that these people will be good organizational citizens during thisremaining time. This article identifies different psychological factors that could explain why individuals would remain good citizens, even after notification of their impending termination. In a survey of 147 skilled employees who received notification of their layoffs, we found that the perceived fairness of the layoff process was the primary factor influencing their citizenship behavior. Additional analyses suggested that the perceived adequacy of the explanation of the layoffs, and whether the layoff victims were treated with respect and dignity, were the primary factors influencing the perceived fairness of the layoff process. The theoretical implications of these results are discussed.     

An empirical assessment of assortative matching in the labor market

In labor markets with worker and firm heterogeneity, the matching between firms and workers may be assortative, meaning that the most productive workers and firms team up. We investigate this with longitudinal population-wide matched employer–employee data from Portugal. Using panel data methods, we quantify a firm-specific productivity term for each firm, and we relate this to the skill distribution of workers in the firm. We find that there is positive assortative matching, in particular among long-lived firms. Using skill-specific estimates of an index of search frictions, we find that the results can only to a small extent be explained by heterogeneity of search frictions across worker skill groups.     

Unemployment insurance and job turnover in Spain

The aim of this paper is to shed some light on the potential relationships between the unemployment insurance system and labour market turnover. This study assumes the incentives embedded in the unemployment insurance system have a heterogeneous impact, depending on the type of labour market transition (quits versus layoffs and recalls versus new job entrances) and on a worker's attachment to the labour market (gender and type of contract). The layoff hazard rate increases as workers qualify for unemployment benefits, whilst the quit hazard rate remains stable. Similarly, employment inflow increases sharply after the exhaustion of unemployment benefits. The timing and importance of the exit differ between recalls and new job entry and depend on a worker's attachment to the labour market. The results show that unemployment benefits appear to favour job turnover and both firms' and workers' decisions seem to matter.     

Job Loss and Entrepreneurship

We examine the impact of job loss on entrepreneurship behaviour. Our identification strategy relies on the use of mass layoffs caused by bankruptcies as indicators of exogenous displacement. Building on Norwegian register data, we find that working in a company which is going to close down due to bankruptcy in the near future raises the subsequent entrepreneur propensity by 155% for men and 180% for women, compared to working in a stable firm. These estimates are much larger than previously reported in the literature. Taking into account that many workers lose their jobs in the comparison group of stable firms also, we suggest that the full effects of displacement are even larger.     

Inter-industry differences in layoff announcement effects for financial institutions

This study expands the examination of workforce layoffs by banks to include non-bank financial institutions and explores inter-industry differences in market reactions to layoff announcements. In examining inter-industry differences, we control for variables that influence the market’s reaction to a layoff announcement, such as firm size, the size of the layoff, the reason given for the layoff, and the governance structure of the firm. We provide evidence of inter-industry differences in market reaction to layoff announcements by financial institutions, with banks experiencing more favorable stock-price reactions than other types of regulated firms. These results provide evidence that bank regulation reduces asymmetric information surrounding managerial announcements to a greater degree than the regulation of other types of financial institutions.

Use of employees and alternative work arrangements in the United States: a law,economics, and organizations perspective

This paper considers the incidence of employees versus other forms of work in the United States, including temporary agency workers, contract company workers, independent contractors, and self-employment. It does so within a single, unifying framework. The approach takes an economics of organizations focus to consider when it is optimal for the firm to control the work routine instead of the worker. This is critical in defining and determining employment versus other forms of work. The cost of measuring output and monitoring effort and of worker versus firm expertise are important in determining the organization of work. This approach proves fruitful, but it also is important to account for the impact of certain legal restrictions in the U.S. labor market. The empirical findings show that independent contractors are in jobs that require worker expertise and training and for which monitoring of worker effort is difficult. Contract company workers' characteristics are a hybrid between independent contractors' and employees'. Temporary agency workers occur where the firm wishes to legally outsource its low-wage workers yet still maintain a degree of control over their work routine.     

What is the most flexible component of wage bill adjustment? Evidence from Belgium

This paper decomposes wage bill changes at the firm level into components due to wage changes, and components due to flows of employment. It relies on an administrative matched employer–employee dataset of individual earnings merged with firms' annual accounts for Belgium over the period 1997–2001. The results are in line with what one would expect in a downward wage rigidity environment. On average, wage bill contractions result essentially from employment cuts in spite of wage increases. Wage growth of job stayers is moderated but positive; and wages of entrants compared with those of incumbents are no lower. The labour force cuts are achieved through both reduced entries and increased exits, due to more layoffs, especially in smaller firms, and wider use of early retirement, especially in manufacturing. In addition, the paper points out the role of overtime hours, temporary unemployment and interim workers in adapting hours worked to economic circumstances.     

Temporary jobs and job search effort in Europe

Using longitudinal data on individuals from the European Community Household Panel (ECHP) for eleven countries during 1995-2001, I investigate temporary job contract duration and job search effort. The countries are Austria, Belgium, Denmark, Finland, France, Greece, Ireland, Italy, the Netherlands, Portugal and Spain. I construct a search model for workers in temporary jobs which predicts that shorter duration raises search intensity. Calibration of the model to the ECHP data implies that at least 75% of the increase in search intensity over the life of a 2+ year temporary contract occurs in the last six months of the contract. I then estimate regression models for search effort that control for human capital, pay, local unemployment, and individual and time fixed effects. I find that workers on temporary jobs indeed search harder than those on permanent jobs. Moreover, search intensity increases as temporary job duration falls, and roughly 84% of this increase occurs on average in the shortest duration jobs. These results are robust to disaggregation by gender and by country. These empirical results are noteworthy, since it is not necessary to assume myopia or hyperbolic discounting in order to explain them, although the data clearly also do not rule out such explanations.     

Announced layoffs: Their effect on corporate financial performance

Conventional wisdom holds that when a firm gets into trouble due to lagging sales and rising costs, cutting the size of the organization to reduce fat and waste is a normal and effective response. In this study, evidence was found to suggest that just the opposite might be true. The financial performance of Fortune 100 companies was tracked over a five-year period—two years prior to the announced layoff, the year of the layoff announcement, and two years following it. Contrary to expectations, the results indicate that financial performance worsened, rather than improved, following announced layoffs. Strategic and human resource implications for the management of corporate downsizing are provided.     

How binding are legal limits? Transitions from temporary to permanent work in Spain

This paper studies the duration pattern of fixed-term contracts and the determinants of their conversion into permanent ones in Spain, where the share of fixed-term employment is the highest in Europe. We estimate a duration model for temporary employment, with competing risks of terminating into permanent employment versus alternative states, and flexible duration dependence. We find that conversion rates are generally below 10%. Our estimated conversion rates roughly increase with tenure, with a pronounced spike at the legal limit, when there is no legal way to retain the worker on a temporary contract. We argue that estimated differences in conversion rates across categories of workers can stem from differences in worker outside options and thus the power to credibly threat to quit temporary jobs.     

Separating contract from governance

This paper contends that there is an important distinction between governance structure and contractual form, and that organizational boundaries, defined by governance structures, need not explain contractual form. The basic idea is that governance refers to the general environments and instruments that structure and ‘govern’ specific terms of trade negotiated in ‘contracts’. Problems of verifiability and observability of contractual performance are hypothesized to drive the differential effects on governance structure and contractual form. Specifically, transaction cost factors known to result in employment as a general governance structure do not automatically result in contracts characterized by the payment of fixed‐wages. Instead, incentive pay and the delegation of decision‐making authority to workers may be preferred by firm owners. The paper proposes that the relationship between a firm and a worker involves a two part decision‐making framework in which one choice is the type of governance that structures the second choice regarding the specific characteristics of the contract linking the worker to the firm. Copyright © 2000 John Wiley & Sons, Ltd.     

The use of flexible employment arrangements: some new evidence from Greek firms

The present study attempts an examination of the extent to which Greek firms use flexible employment arrangements, the kind of jobs in which they are used and the factors affecting their use. It concentrates on three types of flexible work: temporary workers, independent contractors and subcontractors. Drawing upon data from a sample of seventy-five companies, it identifies factors affecting: a) firm's decision to use flexible forms of work or not and b) the percentage of flexible workers used.

The main findings indicate that different types of flexible worker are used by the same firm for the accomplishment of different kinds of job and are affected by different factors. Training costs and monitoring problems appear to be the most influential factors explaining the use of temporary workers, while low frequency of specialized tasks is the main factor affecting the use of independent contractors and often the recourse to subcontractors. Results from the Greek national context would add to existing evidence on this important issue.     

Layoff victim's employment relationship with a new employer in Korea: effects of unmet tenure expectations on trust and psychological contract

Existing studies of psychological contract have largely focused on the effects of contract breach on employees' attitudes and the contract itself involving the same employer. Given that both workforce mobility and downsizing activities are increasing, it is important to understand how individuals' past employment experiences shape their relationships with their employers. The present study focuses on the effect of prior layoffs on relationships with new employers. We posit that furloughed workers experience layoff as a breach of the psychological contract of job security they have entered into with their employer. Longitudinal data collected from individuals who were re-employed following a layoff revealed that unmet tenure expectations in an employment relationship result in reduced trust in a new employer, which in turn negatively impacts the quality of psychological contracts with the new employer. The results also show that the relationship between unmet tenure expectations and trust was moderated by individual attributions regarding the cause of the layoff. The present findings suggest that the negative impact of contract breach experienced with one organization may carry over to subsequent organizational contexts.     

Distributive justice and organizational commitment revisited: moderation by layoff in the case of Korean employees

Research supports the conclusion that organizational commitment is affected more by procedural justice than by distributive justice, and this is especially true in collectivistic societies. The present research examines the effects of distributive justice on organizational commitment levels of Korean employees under layoff situations. It focuses on the moderating effects of two layoff variables: layoff experience and layoff perception. Data were collected from HR managers from 14 companies and 411 employees. It was found that layoff perception significantly moderated the effect of distributive justice on organizational commitment, while there was no significant effect found in the case of layoff experience. Additional analyses show that employees perceive a high level of distributive justice even in the case of layoffs when training on the appraisal methods are provided. Implications of these findings are included in the discussion. © 2002 Wiley Periodicals, Inc.     

Understanding the Determinants of Who Gets Laid Off: Does Affective Organizational Commitment Matter?

Whereas prior research has focused on structural, demographic, and human capital factors to predict who gets laid off, the current study examines affective organizational commitment as an additional attribute related to an employee's layoff chances. Specifically, we investigate the relationship between affective organizational commitment and an individual's layoff chances, as well as whether this relationship differs between high and low performers. Event history analysis is conducted using survey data with matched personnel records from 3,057 employees across 563 Australian bank branches. After controlling for numerous predictors of layoffs, the results demonstrate that affective organizational commitment decreases the likelihood of an employee being laid off. Further, the effects of affective organizational commitment on an individual's layoff chances are greater for lower performers than higher performers. We discuss the implications of these findings for researchers and practitioners. © 2015 Wiley Periodicals, Inc.