Job Insecurity

49 Pages Posted: 27 Oct 2016 Last revised: 6 Feb 2018

Aditya Kuvalekar

Universidad Carlos III de Madrid

Elliot Lipnowski

University of Chicago - Department of Economics

Date Written: February 6, 2018

Abstract

We examine the relationship between job security and productivity, in a fixed wage worker-firm relationship facing match quality uncertainty. The worker chooses effort, affecting both learning and current productivity. The firm, seeing worker effort 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 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 (February 6, 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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