Separations Revisited: Do Layoffs or Quits Drive Lower Separation Rates in High-Quality Firms?

Cauê Dobbin, Daniel Fernandez and Tom Zohar

No 12685, CESifo Working Paper Series from CESifo

Abstract: We challenge the view that the negative correlation between firm quality and separation rates reflects efficient separations. Using Brazilian administrative data, we show that this correlation is driven by lower layoff rates at high-quality firms, not differences in quits. We develop a job search model where wage rigidity and productivity uncertainty generate inefficient layoffs. The model predicts that higher-quality firms have larger markdowns and, consequently, fewer layoffs. Empirically, we validate this by showing that firms facing stronger wage rigidity have higher layoffs and a steeper quality-layoff correlation, and that markdowns are higher in better firms and negatively correlated with layoffs.

Keywords: layoffs; quits; separations; firm quality; wage rigidity; monopsony; markdowns; job search; Brazil (search for similar items in EconPapers)
JEL-codes: E24 J31 J41 J63 J64 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12685

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