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Job Insecurity

Author

Listed:
  • Aditya Kuvalekar
  • Elliot Lipnowski

Abstract

We examine the relationship between job security and productivity in a fixed wage worker-firm relationship facing match quality uncertainty. The worker's action affects both learning and current productivity. The firm, seeing worker behavior and outcomes, makes a firing decision. As bad news accrues, the firm cannot commit to retain the worker. This creates perverse incentives: the worker strategically slows learning, harming productivity. We fully characterize the unique equilibrium in our continuous-time game. Consistent with some evidence in organizational psychology, the relationship between job insecurity and productivity is U-shaped: a worker is least productive when his job is moderately secure.

Suggested Citation

  • Aditya Kuvalekar & Elliot Lipnowski, 2020. "Job Insecurity," American Economic Journal: Microeconomics, American Economic Association, vol. 12(2), pages 188-229, May.
    • Handle: RePEc:aea:aejmic:v:12:y:2020:i:2:p:188-229
    DOI: 10.1257/mic.20190132
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    Citations

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    Cited by:

    1. Joshua D. Pitts & Brent A. Evans, 2023. "New contracts and dismissal threats from highly drafted rookies: What motivates NFL quarterbacks?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 4-16, January.

    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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