License to Fire? Unemployment Insurance and the Moral Cost of Layoffs

Daniel Keum () and Stephan Meier ()
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Daniel Keum: Columbia Business School
Stephan Meier: Columbia University

No 13497, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Expanding unemployment insurance (UI) not only reduces the burden for the unemployed but also the moral cost of layoffs to firms and their managers. Using staggered expansions of UI across US states, we show that expanding UI leads to larger layoffs in firms experiencing negative economic shocks. The effects are stronger in weakly governed and financially unconstrained firms, where managers have greater discretion to avoid moral cost. This study presents moral cost as a novel microeconomic channel through which UI affects layoff decisions, which can compromise its effectiveness as a social insurance program and an automatic stabilizer.

Keywords: managers; layoffs; unemployment insurance; prosocial behavior (search for similar items in EconPapers)
JEL-codes: D04 D91 J65 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2020-07
New Economics Papers: this item is included in nep-ias and nep-lab
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Published - published as 'License to Layoff? Unemployment Insurance and the Moral Cost of Layoffs' in: Organization Science, 2023, 35 (3), 994-1014

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