IDEAS home Printed from https://ideas.repec.org/p/har/wpaper/0110.html
   My bibliography  Save this paper

Downsizing

Author

Listed:
  • Gerard A. Pfann

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

  • Gerard A. Pfann, 2001. "Downsizing," Working Papers 0110, Harris School of Public Policy Studies, University of Chicago.
    • Handle: RePEc:har:wpaper:0110
    as

    Download full text from publisher

    File URL: http://harrisschool.uchicago.edu/about/publications/working-papers/pdf/wp_01_10.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    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.
    2. 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.
    3. Thomas J. Sargent, 1973. "Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(2), pages 429-480.
    4. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 381-402.
    5. repec:bla:econom:v:45:y:1978:i:180:p:329-45 is not listed on IDEAS
    6. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    7. 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.
    8. McLaughlin, Kenneth J, 1991. "A Theory of Quits and Layoffs with Efficient Turnover," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 1-29, February.
    9. Paul Oyer & Scott Schaefer, 2000. "Layoffs and Litigation," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 345-358, Summer.
    10. Edward P. Lazear, 1995. "Hiring Risky Workers," NBER Working Papers 5334, National Bureau of Economic Research, Inc.
    11. Daniel S. Hamermesh, 1987. "The Costs of Worker Displacement," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(1), pages 51-75.
    12. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144.
    13. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
    14. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 881-919.
    15. Jovanovic, Boyan, 1979. "Firm-specific Capital and Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1246-1260, December.
    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. 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).

    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. I. Sebastian Buhai & Coen N. Teulings, 2014. "Tenure Profiles and Efficient Separation in a Stochastic Productivity Model," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 32(2), pages 245-258, April.
    2. 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.
    3. Bergemann, Annette & Mertens, Antje, 2004. "Job Stability Trends, Layoffs, and Transitions to Unemployment: An Empirical Analysis for West Germany," IZA Discussion Papers 1368, Institute of Labor Economics (IZA).
    4. I. Sebastian Buhai & Miguel A. Portela & Coen N. Teulings & Aico van Vuuren, 2014. "Returns to Tenure or Seniority?," Econometrica, Econometric Society, vol. 82(2), pages 705-730, March.
    5. Gerard A. Pfann & Daniel S. Hamermesh, 2000. "Two-Sided Learning, Labor Turnover, and Worker Displacement," Working Papers 0021, Harris School of Public Policy Studies, University of Chicago.
    6. Gerard A. Pfann & Daniel S. Hamermesh, 2001. "Two-Sided Learning, Labor Turnover and Displacement," NBER Working Papers 8273, National Bureau of Economic Research, Inc.
    7. Pfann Gerard A. & Hamermesh Daniel S., 2008. "Two-Sided Learning with Applications to Labor Turnover and Worker Displacement," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 228(5-6), pages 423-445, October.
    8. Martin A. van der Ende & Coenraad N. Teulings, 2001. "A Structural Model of Tenure and Specific Investments," CESifo Working Paper Series 532, CESifo.
    9. William J. Carrington & Bruce Fallick, 2017. "Why Do Earnings Fall with Job Displacement?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 56(4), pages 688-722, October.
    10. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, April.
    11. Alan Manning & Joanna Swaffield, 2008. "The gender gap in early-career wage growth," Economic Journal, Royal Economic Society, vol. 118(530), pages 983-1024, July.
    12. Cassidy, Hugh & DeVaro, Jed & Kauhanen, Antti, 2016. "Promotion signaling, gender, and turnover: New theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 140-166.
    13. Joseph G. Altonji & Anthony A. Smith Jr. & Ivan Vidangos, 2013. "Modeling Earnings Dynamics," Econometrica, Econometric Society, vol. 81(4), pages 1395-1454, July.
    14. Pfann, Gerard A., 2001. "Options to quit," Economics Letters, Elsevier, vol. 70(2), pages 259-265, February.
    15. Coen N. Teulings & Martin A. van der Ende, 2000. "A Structural Model of Tenure and Specific Investments," Tinbergen Institute Discussion Papers 00-009/3, Tinbergen Institute, revised 30 Nov 2002.
    16. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    17. William J. Carrington & Bruce Fallick, 2014. "Why Do Earnings Fall with Job Displacement?," Working Papers (Old Series) 1405, Federal Reserve Bank of Cleveland.
    18. Kampkötter, Patrick & Sliwka, Dirk, 2014. "Wage premia for newly hired employees," Labour Economics, Elsevier, vol. 31(C), pages 45-60.
    19. Ferreira, Priscila, 2009. "The determinants of promotions and firm separations," ISER Working Paper Series 2009-11, Institute for Social and Economic Research.
    20. Haile, Getinet Astatike, 2009. "The Nature and Extent of Job Separations in Germany: Some New Evidence from SOEP," IZA Discussion Papers 4216, Institute of Labor Economics (IZA).
    21. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.

    More about this item

    Keywords

    downsizing; layoff; personnel;
    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

    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:har:wpaper:0110. 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: Eleanor Cartelli (email available below). General contact details of provider: https://edirc.repec.org/data/spuchus.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.