A signaling model of temporary layoffs

Núria Rodriguez-Planas

Oxford Economic Papers, 2009, vol. 61, issue 3, 566-585

Abstract: Temporary layoffs are an important feature of North American and European labor markets. This article presents an asymmetric information model of layoffs that explicitly considers the possibility of recall. In this model, high-productivity workers are more likely to be recalled to their former employer and may choose to remain unemployed rather than to accept a low-wage job. In this case, unemployment can serve as a signal of productivity. I present conditions under which all equilibria satisfying the Cho-Kreps intuitive criterion must entail (some) unemployment. Because of productivity gains from valuable job-matches, unemployment may be socially desirable for those workers who were particularly productive with their former employer. If so, a re-employment bonus that encourages low-productivity workers to find a new job but does not discourage high-productivity workers from waiting for recall is an optimal policy from societal perspective. Equity properties of such a policy and its cost effectiveness are analysed. Copyright 2009 , Oxford University Press.

Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1093/oep/gpp001 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:oxecpp:v:61:y:2009:i:3:p:566-585

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Oxford Economic Papers is currently edited by James Forder and Francis J. Teal

More articles in Oxford Economic Papers from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().