Who Do Firms Lay Off and Why?

18 Pages Posted: 31 Jan 2012

See all articles by John Dencker

John Dencker

Northeastern University - D'Amore-McKim

Date Written: January 2012

Abstract

I develop and test a structural–historical account of corporate reductions in force (RIF) to assess whether this widespread process was redistributive or efficient. I argue that changes in the context of restructuring in recent decades, coupled with substantial changes in organizational compensation systems, lead to temporal variation in the likelihood of “broken‐contract” RIF, in which firms terminate highly paid managers, and “trimming the fat” RIF, in which firms terminate low‐performing managers. Analyses of personnel records from a Fortune 500 manufacturing firm indicate that low performance leads to increased risk of separation in each of the two RIF undertaken by the firm, with the effect becoming stronger over time in part because of changes in the firm’s performance management system. By contrast, high wages were a more important factor explaining departure during the firm’s RIF in the 1980s - when competitive pressures to default on bonded contracts were strong - than during its RIF in the 1990s.

Suggested Citation

Dencker, John, Who Do Firms Lay Off and Why? (January 2012). Industrial Relations: A Journal of Economy and Society, Vol. 51, Issue 1, pp. 152-169, 2012, Available at SSRN: https://ssrn.com/abstract=1995955 or http://dx.doi.org/10.1111/j.1468-232X.2011.00666.x

John Dencker (Contact Author)

Northeastern University - D'Amore-McKim ( email )

360 Huntington Ave.
Boston, MA 02115
United States

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