Threat of Dismissal: Incentive or Sorting?

Illoong Kwon ()

No 114, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: Many people are fired from their jobs for poor performance. However, it is difficult to distinguish whether they are fired because they are not well suited for their job (sorting explanation) or because the firms are trying to provide incentives for effort (incentive explanation). This paper develops a dynamic incentive model of dismissal and proposes a methodology to distinguish between these two explanations. The methodology rests on the learning-by-doing and the changes in the slope of dismissal probability with respect to tenure. With our unique personnel data, we find significant evidence for the incentive explanation

Keywords: Dismissal; Moral Hazard; Sorting; Learning (search for similar items in EconPapers)
JEL-codes: D82 D83 J41 (search for similar items in EconPapers)
Date: 2004-08-11
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:nasm04:114

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