 The Layoff Rat Race*Dan Bernhardt and Steeve Mongrain Scandinavian Journal of Economics, 2010, vol. 112, issue 1, 185-210 Abstract: We investigate how discretionary investments in general and specific human capital are affected by the possibility of layoffs. After investments are made, firms may have to lay off workers, and will do so in inverse order of the profit that each worker generates. Greater skill investments, especially in specific human capital, contribute more to a firm's bottom line, so that workers who make those investments will be laid off last. We show that as long as workers' bargaining positions are not too weak, workers invest in specific human capital in order to reduce layoff probabilities. Indeed, workers over‐invest in skill acquisition from a social perspective whenever their bargaining power is strong enough, even though they only receive a share of any investment. More generally, we characterize how equilibrium skill investments are affected by the distribution of worker abilities within firms, the probability that a firm will downsize, and the distribution of employment opportunities in the economy. Date: 2010 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:scandj:v:112:y:2010:i:1:p:185-210 Ordering information: This journal article can be ordered from Access Statistics for this article Scandinavian Journal of Economics is currently edited by Richard Friberg, Matti Liski and Kjetil Storesletten More articles in Scandinavian Journal of Economics from Wiley Blackwell |
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