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Pay cuts and layoffs in an experimental minimum effort coordination game

Ananish Chaudhuri (), Tony So () and Erwann Sbai ()
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Ananish Chaudhuri: University of Auckland
Tony So: Xi'an Jiaotong Liverpool University
Erwann Sbai: University of Auckland

Economics Bulletin, 2017, vol. 37, issue 3, 2181-2197

Abstract: It is well-documented that during recessions, businesses prefer to lay off workers rather than implement across the board pay cuts. We examine the impact of pay cuts versus layoffs on intra-organization coordination, which is a fundamental problem facing firms involved in team production, by looking at behavior in the minimum effort coordination game following an intervention. Our results suggest that, contrary to received wisdom, both pay cuts and layoffs foster better coordination success. In particular, we do not find that pay cuts are detrimental to intra-organization coordination.

Keywords: Pay cuts; Layoffs; Weak-link games; Coordination; Experiments (search for similar items in EconPapers)
JEL-codes: C9 L2 (search for similar items in EconPapers)
Date: 2017-09-27
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