Re-Employment Bonuses in a Signalling Model of Temporary Layoffs

Núria Rodriguez-Planas

No 1010, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Temporary layoffs are an important feature of the United States labor market. If these employer-employee relationships exist because of valuable job-matches, unemployment among high-productivity laid-off workers may be optimal from societal perspective. However, because of asymmetric information, low-productivity workers may behave strategically, and choose unemployment instead of low-wage jobs, resulting in an inefficient level of unemployment. This paper shows that in such cases, a re-employment bonus may give the correct incentives to laid-off workers and achieve the optimal equilibrium. The paper analyzes the equity properties of such a policy and its cost effectiveness. Finally, the model fits the data and offers several policy implications.

Keywords: temporary layoffs; signalling and re-employment bonus demonstrations; recall expectations; unemployment (search for similar items in EconPapers)
JEL-codes: J63 J64 J65 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2004-02
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published as 'A signaling model of temporary layoffs' in: Oxford Economic Papers, 2009, 61 (3), 566-585

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