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Downsizing

Author

Listed:
  • Pfann, Gerard A.

    (Maastricht University)

Abstract
Optimal layoff rules in closed form are derived for all workers in a firm that downsizes under uncertainty and faces heterogeneous firing costs. The theoretical model predicts that the firm displaces workers with low firing costs, low expected future productivity growth, and low layoff option values. The empirical analysis based on personnel records from a Dutch aircraft building company that went bankrupt in 1996 shows that workers with high uncertainty associated with higher than average expected productivity growth are most likely to be retained.

Suggested Citation

  • Pfann, Gerard A., 2001. "Downsizing," IZA Discussion Papers 307, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp307
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    File URL: https://docs.iza.org/dp307.pdf
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    Other versions of this item:

    • Gerard A. Pfann, 2001. "Downsizing," Working Papers 0110, Harris School of Public Policy Studies, University of Chicago.

    References listed on IDEAS

    as
    1. Joseph G. Altonji & Charles R. Pierret, 2001. "Employer Learning and Statistical Discrimination," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 313-350.
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    6. Edward P. Lazear, 1995. "Hiring Risky Workers," NBER Working Papers 5334, National Bureau of Economic Research, Inc.
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    9. Jovanovic, Boyan, 1979. "Firm-specific Capital and Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1246-1260, December.
    10. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
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    12. repec:bla:econom:v:45:y:1978:i:180:p:329-45 is not listed on IDEAS
    13. Robert H. Topel & Michael P. Ward, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 439-479.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Lehmann, Hartmut & Philips, Kaia & Wadsworth, Jonathan, 2005. "The incidence and cost of job loss in a transition economy: displaced workers in Estonia, 1989 to 1999," Journal of Comparative Economics, Elsevier, vol. 33(1), pages 59-87, March.
    2. Sunde, Uwe, 2002. "Unobserved Bilateral Search on the Labor Market: A Theory-Based Correction for a Common Flaw in Empirical Matching Studies," IZA Discussion Papers 520, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    heterogeneity; uncertainty; firing costs; Layoff rules;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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