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The Response of Employees to Severance Incentives: The University of California's Faculty, 1991-94

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  • John Pencavel

Abstract

In response to huge budgetary shortfalls in the early 1990s, the University of California offered its older and longer-service employees financial inducements to leave. This paper analyzes the responses of UC's faculty to three waves of buyout incentives. It is estimated that an individual presented with 10 percent higher severance benefits has a 7-8 percent higher probability of quitting. However, quit probabilities are very difficult to forecast with accuracy. This casts doubt on arguments that maintain that buyouts are superior to employer-initiated layoffs as a mechanism to effect large employment changes.

Suggested Citation

  • John Pencavel, 2001. "The Response of Employees to Severance Incentives: The University of California's Faculty, 1991-94," Journal of Human Resources, University of Wisconsin Press, vol. 36(1), pages 58-84.
    • Handle: RePEc:uwp:jhriss:v:36:y:2001:i:1:p:58-84
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    Cited by:

    1. K. Sonin & I. Khovanskaya & M. Yudkevich, 2008. "Budget Uncertainty and Faculty Contracts: A Dynamic Framework for Comparative Analysis," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 12.
    2. Blundell, Richard & Francesconi, Marco & van der Klaauw, Wilbert, 2011. "Anatomy of Welfare Reform Evaluation: Announcement and Implementation Effects," IZA Discussion Papers 6050, Institute of Labor Economics (IZA).
    3. Christian Grund, 2006. "Severance payments for dismissed employees in Germany," European Journal of Law and Economics, Springer, vol. 22(1), pages 49-71, July.
    4. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    5. Brown, Kristine M., 2013. "The link between pensions and retirement timing: Lessons from California teachers," Journal of Public Economics, Elsevier, vol. 98(C), pages 1-14.
    6. Kenneth T. Whelan & Ronald G. Ehrenberg & Kevin F. Hallock & Ronald L. Seeber, 2012. "Adverse Selection and Incentives in an Early Retirement Program," Research in Labor Economics, in: Research in Labor Economics, pages 159-190, Emerald Group Publishing Limited.
    7. Robert L. Clark & P. Brett Hammond, "undated". "Implications of Changing Retirement Patterns and Policies in Higher Education," Pension Research Council Working Papers 2000-6, Wharton School Pension Research Council, University of Pennsylvania.
    8. Charles Brown, "undated". "Early Retirement Windows," Pension Research Council Working Papers 98-17, Wharton School Pension Research Council, University of Pennsylvania.

    More about this item

    JEL classification:

    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

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