Job Insecurity

54 Pages Posted: 27 Oct 2016 Last revised: 25 Nov 2018

See all articles by Aditya Kuvalekar

Aditya Kuvalekar

Universidad Carlos III de Madrid

Elliot Lipnowski

University of Chicago - Department of Economics

Date Written: November 22, 2018

Abstract

We examine the relationship between job security and productivity, in a fixed wage worker-firm relationship facing match quality uncertainty. The worker’s action affects both learning and current productivity. The firm, seeing worker behavior and outcomes, makes a firing decision. As bad news accrues, the firm cannot commit to retain the worker. This creates perverse incentives: the worker strategically slows learning, harming productivity. We fully characterize the unique equilibrium in our continuous-time game. Consistent with some evidence in organizational psychology, the relationship between job insecurity and productivity is U-shaped: a worker is least productive when his job is moderately secure.

Keywords: job security, dynamic agency, career concerns, low-powered incentives

JEL Classification: C73, M51, J24, D83

Suggested Citation

Kuvalekar, Aditya and Lipnowski, Elliot, Job Insecurity (November 22, 2018). Available at SSRN: https://ssrn.com/abstract=2860092 or http://dx.doi.org/10.2139/ssrn.2860092

Aditya Kuvalekar (Contact Author)

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Elliot Lipnowski

University of Chicago - Department of Economics ( email )

1126 E. 59th St
Chicago, IL 60637
United States

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