When are Layoffs Acceptable? Evidence from a Quasi-Experiment

Universitat Pompeu Fabra, Economics Working Paper No. 369

27 Pages Posted: 19 Aug 1999

See all articles by Gary Charness

Gary Charness

University of California, Santa Barbara (UCSB) - Department of Economics

David I. Levine

University of California, Berkeley - Haas School of Business

Abstract

Many authors have discussed a decline in internal labor markets and an apparent shift to a new employment contract, characterized by less commitment between employer and employee and more portable skills. These discussions occur without much evidence on what employment contract employees currently feel is fair. We perfomed quasi-experimental surveys to study when employees in the U.S. and Canada feel that layoffs are fair. Layoffs were perceived as more fair if they were due to lower product demand than if the result of employee suggestions. This result appears to be solely due to norms of reciprocity (companies should not punish employees for their efforts), rather than norms of sharing rents, as new technology was also considered a justification for layoffs. Consistent with theories of distributive and procedural equity, layoffs were perceived as more fair if the CEO voluntarily shared the pain. CEO bonuses due to layoffs lowered their reported fairness only slightly. Respondents in Silicon Valley were not more accepting of layoffs than were those in Canada on average, although the justifications considered valid differed slightly.

JEL Classification: A13, C93, J41, J50, L14

Suggested Citation

Charness, Gary and Levine, David Ian, When are Layoffs Acceptable? Evidence from a Quasi-Experiment. Universitat Pompeu Fabra, Economics Working Paper No. 369, Available at SSRN: https://ssrn.com/abstract=163248 or http://dx.doi.org/10.2139/ssrn.163248

Gary Charness (Contact Author)

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

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David Ian Levine

University of California, Berkeley - Haas School of Business ( email )

Berkeley, CA 94720
United States
510-642-1697 (Phone)
510-643-1420 (Fax)

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