Asymmetric information in the labor market: new evidence on layoffs, recalls, and unemployment

Núria Rodriguez-Planas

No 1999-09, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In the United States, many laid-off workers are recalled to their former employer. I develop an asymmetric information model of layoffs in which high-productivity workers are more likely to be recalled and may choose to remain unemployed rather than accept a low-wage job. In this case, unemployment can serve as a signal of productivity, and unemployment duration may be positively related to post-layoff wages even among workers who are not recalled. In contrast, since workers whose plant closed cannot be recalled, longer unemployment duration should not have a positive signaling benefit for such workers. Analysis of the data from January 1988-1992 Displaced Workers Supplements to the Current Population Survey reveals that the wage/unemployment duration relation differs between the two groups in the predicted way, and finds evidence consistent with asymmetric information in the U.S. labor market.

Keywords: Unemployment; Labor market (search for similar items in EconPapers)
Date: 1999
New Economics Papers: this item is included in nep-lab and nep-pke
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