Downsizing and Job Insecurity

Shapiro, Joel and Jeon, Doh-Shin (2007) Downsizing and Job Insecurity. Journal of the European Economic Association, 5 (5). pp. 1043-1063.


This article offers an explanation of why firms' downsizing patterns may vary substantially in magnitude and timing, taking the form of one-time massive cuts, waves of layoffs, or zero layoff policies. The key element of this theory is that workers' expectations about their job security affect their on-the-job performance. In a situation where firms face adverse shocks, the productivity effect of job insecurity forces firms to balance laying off redundant workers and maintaining survivors' commitment. The cost of ensuring commitment differs between firms with different characteristics and determines whether workers are laid off all at once or in stages. However, if firms have private information about their future profits, they may not lay off any workers in order to signal a bright future, boosting worker's confidence.

Item Type: Article
Keywords: finance
Subject(s): Finance
Related URLs:
Date Deposited: 25 Sep 2015 14:15
Last Modified: 02 Mar 2017 14:18
Funders: not applicable

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