Optimal Strategies for Workers on Temporary Layoff

Abstract

In this paper we analyze the worker's behavior when faced with job offers which include possible temporary layoff spells of varying (known) durations. We show that of the three strategies which can be optimal, two involve search in all or part of the layoffs. We also show that the duration of any particular spell plays no role in determining which strategy is optimal to pursue. And finally, we develop an index for evaluating jobs with different wage and layoff probabilities and show that the worker's reservation wage monotonically increases, decreases or remains constant during the course of a layoff.

Keywords: temporary layoffs, workers, employees, optimal strategies, implicit contract literature, attachment assumption

JEL Classification: K19, K31, J63, J69