IDEAS home Printed from https://ideas.repec.org/p/fip/fedlwp/1998-006.html
   My bibliography  Save this paper

Seniority-based layoffs as an incentive device

Author

Listed:
  • Joseph A. Ritter
  • Lowell J. Taylor

Abstract

This paper provides a simple economic rationale for two elements that often appear - implicitly or explicitly - in firms' personnel policies. When firms reduce their labor input they often (i) lay off a few individuals rather than adjust work hours, and (ii) make retention decisions on the basis of seniority. We show that in a stochastic environment, a seniority-based layoff policy can have the effect of making the job valuable to a worker over most of her career. This provides work-life incentives using a mechanism similar to Lazear's well known model of upward-sloping wage profiles. Firms reduce their workforce by adjusting employment rather than work hours because layoffs are an integral part the incentive scheme.

Suggested Citation

  • Joseph A. Ritter & Lowell J. Taylor, 1998. "Seniority-based layoffs as an incentive device," Working Papers 1998-006, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:1998-006
    as

    Download full text from publisher

    File URL: http://research.stlouisfed.org/wp/more/1998-006
    File Function: Full text
    Download Restriction: no
    File URL: http://research.stlouisfed.org/wp/1998/1998-006.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. George A. Akerlof & Hajime Miyazaki, 1980. "The Implicit Contract Theory of Unemployment meets the Wage Bill Argument," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(2), pages 321-338.
    2. Edward P. Lazear & Paul Oyer, 2012. "Personnel Economics [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    3. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-620, September.
    4. George A. Akerlof & Lawrence F. Katz, 1989. "Workers' Trust Funds and the Logic of Wage Profiles," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(3), pages 525-536.
    5. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, December.
    6. John C. Ham, 1986. "Testing whether Unemployment Represents Intertemporal Labour Supply Behaviour," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(4), pages 559-578.
    7. Haltiwanger, John, 1984. "The Distinguishing Characteristics of Temporary and Permanent Layoffs," Journal of Labor Economics, University of Chicago Press, vol. 2(4), pages 523-538, October.
    8. Idson, Todd L & Valletta, Robert G, 1996. "Seniority, Sectoral Decline, and Employee Retention: An Analysis of Layoff Unemployment Spells," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 654-676, October.
    9. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    10. Martin S. Feldstein, 1975. "The Importance of Temporary Layoffs: An Empirical Analysis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(3), pages 725-745.
    11. Katharine G. Abraham & James L. Medoff, 1984. "Length of Service and Layoffs in Union and Nonunion Work Groups," ILR Review, Cornell University, ILR School, vol. 38(1), pages 87-97, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joseph A. Ritter & Lowell J. Taylor, 1998. "Valuable jobs and uncertainty," Working Papers 1997-005, Federal Reserve Bank of St. Louis.
    2. Joseph A. Ritter & Lowell J. Taylor, 1997. "Economic models of employee motivation," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-21.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Edward P. Lazear, 1999. "Personnel Economics: Past Lessons and Future Directions," NBER Working Papers 6957, National Bureau of Economic Research, Inc.
    2. repec:eee:labchp:v:3:y:1999:i:pb:p:2291-2372 is not listed on IDEAS
    3. Börsch-Supan, Axel & Weiss, Matthias, 2016. "Productivity and age: Evidence from work teams at the assembly line," The Journal of the Economics of Ageing, Elsevier, vol. 7(C), pages 30-42.
    4. Michael Waldman, 2012. "Theory and Evidence in Internal LaborMarkets [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    5. Gielen, Anne C. & van Ours, Jan C., 2006. "Age-specific cyclical effects in job reallocation and labor mobility," Labour Economics, Elsevier, vol. 13(4), pages 493-504, August.
    6. Lloyd Ulman, 1992. "Why Should Human Resource Managers Pay High Wages?," British Journal of Industrial Relations, London School of Economics, vol. 30(2), pages 177-212, June.
    7. John S. Earle & Klara Z. Sabirianova, 2002. "How Late to Pay? Understanding Wage Arrears in Russia," Journal of Labor Economics, University of Chicago Press, vol. 20(3), pages 661-707, July.
    8. Nieken, Petra & Schmitz, Patrick W., 2012. "Repeated moral hazard and contracts with memory: A laboratory experiment," Games and Economic Behavior, Elsevier, vol. 75(2), pages 1000-1008.
    9. Alberto Bayo-Moriones & Jose E. Galdon-Sanchez & Maia Güell, 2010. "Is seniority-based pay used as a motivational device? Evidence from plant-level data," Research in Labor Economics, in: Jobs, Training, and Worker Well-being, pages 155-187, Emerald Group Publishing Limited.
    10. Robert Dur & Heiner Schmittdiel, 2019. "Paid to Quit," De Economist, Springer, vol. 167(4), pages 387-406, December.
    11. Joseph A. Ritter & Lowell J. Taylor, 1997. "Economic models of employee motivation," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-21.
    12. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    13. Paul Hek & Daniel Vuuren, 2011. "Are older workers overpaid? A literature review," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(4), pages 436-460, August.
    14. Carstensen, Vivian, 1999. "Beschäftigungssicherung durch Arbeitszeitflexibilisierung," Hannover Economic Papers (HEP) dp-228, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    15. repec:eee:labchp:v:2:y:1986:i:c:p:789-848 is not listed on IDEAS
    16. Alessandra Cataldi & Stephan Kampelmann & François Rycx, 2012. "Does it pay to be productive? The case of age groups," International Journal of Manpower, Emerald Group Publishing Limited, vol. 33(3), pages 264-283, June.
    17. Nicola Gagliardi & Elena Grinza & François Rycx, 2021. "Can You Teach an Old Dog New Tricks? New Evidence on the Impact of Tenure on Productivity," Working Papers CEB 21-007, ULB -- Universite Libre de Bruxelles.
    18. Christian Pfeifer, 2014. "Base Salaries, Bonus Payments, and Work Absence among Managers in a German Company," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(5), pages 523-536, November.
    19. Clark, Andrew E., 1999. "Are wages habit-forming? evidence from micro data," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 179-200, June.
    20. Glenn MacDonald & Michael S. Weisbach, 2004. "The Economics of Has-beens," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 289-310, February.
    21. John S. Heywood & Uwe Jirjahn, 2016. "The hiring and employment of older workers in Germany: a comparative perspective [Die Beschäftigung und Neueinstellung älterer Arbeitnehmer in Deutschland: Eine vergleichende Perspektive]," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 49(4), pages 349-366, December.
    22. Failla, Virgilio & Melillo, Francesca & Reichstein, Toke, 2017. "Entrepreneurship and employment stability — Job matching, labour market value, and personal commitment," Journal of Business Venturing, Elsevier, vol. 32(2), pages 162-177.
    23. Kandel, Eugene & Pearson, Neil D., 2001. "Flexibility versus Commitment in Personnel Management," Journal of the Japanese and International Economies, Elsevier, vol. 15(4), pages 515-556, December.

    More about this item

    Keywords

    Labor market;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:1998-006. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Anna Oates (email available below). General contact details of provider: https://edirc.repec.org/data/frbslus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.