Downsizing

Gerard Pfann

No 307, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Optimal layoff rules in closed form are derived for all workers in a firm that downsizes under uncertainty and faces heterogeneous firing costs. The theoretical model predicts that the firm displaces workers with low firing costs, low expected future productivity growth, and low layoff option values. The empirical analysis based on personnel records from a Dutch aircraft building company that went bankrupt in 1996 shows that workers with high uncertainty associated with higher than average expected productivity growth are most likely to be retained.

Keywords: heterogeneity; uncertainty; firing costs; Layoff rules (search for similar items in EconPapers)
JEL-codes: J33 J63 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2001-06
New Economics Papers: this item is included in nep-lab and nep-tid
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Citations: View citations in EconPapers (4)

Published - revised version published as 'Downsizing and Heterogeneous Firing Costs' in: Review of Economics and Statistics, 2006, 88 (1), 158-170

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Working Paper: Downsizing (2001)
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