Job Insecurity

Aditya Kuvalekar and Elliot Lipnowski

American Economic Journal: Microeconomics, 2020, vol. 12, issue 2, 188-229

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.

JEL-codes: J23 J24 J63 M51 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1257/mic.20190132

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