When are layoffs acceptable? Evidence from a quasi-experiment

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.New employment contract, fairness, justifications, layoffs, survey, Leex

The Economic Performance of Survivors after Layoffs: A Plant-Level Study

This study tests for the empirical relationship between layoffs and the economic performance of workers who remain after the layoffs. Previous studies performed in laboratory settings have often found increases in the efficiency of workers after layoffs. This analysis is the first to test for this relationship using operating data from a set of similar establishments. Within the framework of a modified Cobb-Douglas production function, layoffs do not influence subsequent productivity in the establishments in this study's sample. It is also suggested that the seniority systems governing layoffs and the highlevels of capital intensity in these establishments may help explain the difference between the findings in the laboratory studies and those obtained in this analysis.

Understanding the New Reality of Layoffs and Helping Employees Find Solutions to Cope

KEY FINDINGS · In general, job tenure in the United States has shortened significantly over recent decades, particularly for relatively older male workers. · Stock prices, which used to react negatively to job loss announcements, began to react less negatively in the recent past, and now tend to react slightly positively. · CEO pay is correlated with layoffs, but, when company size is controlled for, there is no relationship between CEO pay and layoffs. · Laid-off workers are less well off than in the past, in terms of subsequent wages, reemployment, and health. · While there are some alternatives to layoffs, firms tend not to use them

Unemployment Through Layoffs and Offshore Outsourcing

[Excerpt] Unemployment can come about in a number of ways, but the form of unemployment that policymakers have shown they are most concerned about involves workers who have involuntarily lost jobs through no fault of their own. Unemployment through layoffs ebbs and flows with the business cycle, but involuntary job loss is ever-present because firms displace workers for reasons other than temporarily weak demand. Employers also layoff employees for reasons specific to the firm or the industry in which the firm lies (e.g., corporate restructuring and seasonality). One means of restructuring work—namely, outsourcing—has spread from employers contracting out functions to other affiliated or nonaffiliated employers in the United States, to employers contracting out activities to affiliated or nonaffiliated employers located outside U.S. borders. The latter business practice is referred to as offshore outsourcing or offshoring. Until the eleventh postwar recession began in December 2007, offshoring had driven much of the interest in job loss and economic insecurity more generally. Some members of the public policy community have been suggesting that offshoring has contributed to the sluggish pace of job growth thus far in the recovery period since the recession’s end in June 2009. But, no database exists that provides anything approximating a complete count of workers separated from payrolls because their company relocated their functions beyond U.S. borders. Starting in 2004, the U.S. Bureau of Labor Statistics (BLS) Mass Layoff Statistics program began to query firms in the private nonfarm sector that call long-lasting large-scale layoffs about whether these events involve the offshoring of work. In addition to excluding layoffs at small firms and in the public sector, the statistical series does not cover layoffs in which fewer than 50 employees are terminated. It thus is likely to understate layoffs associated with offshore outsourcing generally and with those involving white-collar workers in the service sector particularly (e.g., accounting clerks at financial services firms, radiologists at medical services providers). This report briefly reviews the various databases that provide information on layoffs. It then examines the trend in mass layoff activity generally before focusing on quarterly outsourcing data derived from the above-described BLS program on extended mass layoffs. In brief, mass layoff activity is up markedly which reflects the lingering impact of the 2007-2009 recession on the labor market. With regard to outsourcing—particularly of work moving offshore—the BLS series shows it is uncommon in extended mass layoffs and accounts for fairly few separated workers. Relocation of work most often occurs within the United States and within the same company. Most workers separated in extended mass layoffs involving domestic or offshore outsourcing had been employed by manufacturers. In extended mass layoffs associated with the movement of work offshore, jobs most often are shifted to Mexico and China

Title VII of the Civil Rights Act of 1964- Seniority Provisions of Union Collective Bargaining Agreement Held Controlling Over EEOC Affirmative Action Hiring Program. Jersey Central Power & Light Co. v. Local 327, IBEW, 508 F.2d 687 (3d Cir. 1975).

Plaintiff, Jersey Central Power & Light Company (Jersey Central), a large public utility, was economically forced to announce a series of plant wide layoffs. The collective bargaining agreement in force between Jersey Central and various unions required that layoffs be conducted in reverse order of seniority, i.e., the last person hired is the first person to be fired. A conciliation agreement among Jersey Central, the unions and the Federal Equal Employment Opportunity Commission (EEOC) called for the company to begin an affirmative action program designed to increase employment opportunities for women and minority workers. Plaintiff sought a declaratory judgment in federal district court as to its rights and obligations under the collective bargaining agreement, the conciliation agreement, Title VII of the Civil Rights Act of 1964 (Title VII) and Executive Order 11246. Plaintiff named various locals of the International Brotherhood of Electrical Workers (the Union), the EEOC, the Office of Federal Contract Compliance (OFCC), the General Services Administration (GSA), and the New Jersey Division of Civil Rights as defendants. Jersey Central took no position as to which of the two agreements must govern the proposed layoffs. The district court held that the layoffs could not alter the pre-layoff minority proportion of the work force by more than fifteen percent. On appeal, the Third Circuit reversed and held that layoffs were to be effectuated in accordance with the provisions of the collective bargaining agreement

Displacement, Asymmetric Information, and Heterogeneous Human Capital

In a seminal paper, Gibbons and Katz (1991) develop and empirically test an asymmetric information model of the labor market. The model predicts that wage losses following displacement should be larger for layoffs than for plant closings, which was borne out by data from the Displaced Workers Survey (DWS). In this paper, we take advantage of many more years of DWS data to examine how the difference in wage losses across plant closings and layoffs varies with race and gender. We find that the differences between white males and the other groups are striking and complex. The “lemons effect” of layoffs holds for white males, as in the Gibbons-Katz model, but not for the other three demographic groups (white females, black females, and black males). These three all experience a greater decline in earnings at plant closings than at layoffs. This results from two reinforcing effects. First, plant closings have substantially more negative effects on minorities than on whites. Second, layoffs seem to have more negative consequences for white men than the other groups. These findings suggest that the Gibbons-Katz asymmetric information model is not sufficient to explain all of the data. We augment the model with heterogeneous human capital and show that this model can explain the findings. We also provide some additional evidence suggestive that both asymmetric information and heterogeneous human capital are important. In support of both explanations, we demonstrate that the racial and gender effects are surprisingly robust to region, industry, and occupation controls. To look at the asymmetric information, we make use of the Civil Rights Act of 1991, which induced employers to lay off “protected” workers in mass layoffs rather than fire them for cause. As a result, relative to whites, a layoff would be a more negative signal for blacks after 1991 than before. If information is important, this would in turn imply that blacks experience a relatively larger loss in earnings at layoffs after 1991 than prior; and that’s what we find in the data. In addition, as further evidence for heterogeneous human capital, we document for the first time in the literature that the two types of layoffs reported in the DWS data, namely layoffs due to “slack work” and “position abolished,” have very different features when compared to plant closings. Finally, we simulate our model and show that it can match the data.human capital, plant closings, layoffs, sex, gender, race

Layoffs and Lemons

In this paper we provide theoretical and empirical analyses of an asymmetric-information model of layoffs in which the current employer is better informed about its workers' abilities than prospective employers are. The key feature of the model is that when firms have discretion with respect to whom to lay off, the market infers that laid-off workers are of low ability. Since no such negative inference should be attached o workers displaced in a plant closing, our model predicts that the postdisplacement wages of otherwise observationally equivalent workers will be higher for those displaced by plant closings than for those displaced by layoffs. An extension of our model predicts that the average postdisplacement unemployment spell of otherwise observationally equivalent workers will be shorter for those displaced by plant closings than for those displaced by layoffs. In our empirical work, we use data from the Displaced Workers Supplements in the January 1984 and 1986 Current Population Surveys. We find that the evidence (with respect to both re-employment wages and postdisplacement unemployment duration) is consistent with the idea that laid off workers are viewed less favorably by the market than are those losing jobs in plant closings. Our findings are much stronger for workers laid off from jobs where employers have discretion over whom to lay off.

To Cut Pay or Lay Off: Exploring a Vexing HR Challenge

Key Findings: In today’s turbulent business environment the need to reduce payroll costs can arise at any time. Generally, this means resorting to one of two agonizing options: cutting pay or engaging in layoffs. The challenge, of course, is to select the option that meets the firm’s financial needs while minimizing the potential downsides involved. Several studies have examined the negative effects of cutbacks on employees. The results of these studies are of limited value to decision-makers, however, since overwhelmingly they focus either on pay cuts or on layoffs while making no attempt to compare the two. Here we report on a series of three studies that extends previous research in a couple of ways. Initially, by examining pay cuts versus layoffs to test their comparative effects. And then by explicitly considering the ways in which these effects vary depending on the context in which they are executed

Relationships, Layoffs, and Organizational Resilience: Airline Industry Responses to September 11

The terrorist attacks of September 11th, 2001 affected the U.S. airline industry more than almost any other industry. Certain of these companies emerged successful, however, and demonstrated remarkable resilience while others languished. This investigation identifies the reasons why some airline companies recovered successfully after the attacks while others struggled. Evidence is provided that layoffs after the crisis, while intended to foster recovery, instead inhibited recovery throughout the four years after the crisis. But layoffs after the crisis were strongly correlated with the lack of financial reserves and the lack of a viable business model prior to the crisis. Digging deeper, we find that having a viable business model itself depended on the extent to which positive employee relationships had been achieved and maintained over the long term. One implication of our findings is that layoffs, while reducing costs in the short term, may also undermine the positive relationships that are critical for achieving lasting recovery.Relationships, layoffs, organizational resilience, terrorist attacks, aviation.

Layoffs and Alternatives to Layoffs

This project aims to evaluate the effects of layoffs and alternatives to layoffs. Working from literature survey and interviews, we described the effects of layoffs and the alternatives, their uses in industry, and their impact on firms. We assessed: 1) if alternatives were used more frequently than layoffs, 2) how effective layoffs and alternatives were at cost cutting and other areas, 3) if company culture played any role in what methods are used. The results provided some information on what cost-cutting methods could be used