Download this Paper Open PDF in Browser

The Excess Sensitivity of Layoffs and Quits to Demand

53 Pages Posted: 7 Jan 2008  

Robert E. Hall

Stanford University - The Hoover Institution on War, Revolution and Peace; National Bureau of Economic Research (NBER)

Edward P. Lazear

Stanford Graduate School of Business; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: February 1982

Abstract

Excessive layoffs in bad times and excessive quits in good times both stem from the same weakness in practical employment arrangements: the specific nature of worker-firm relations creates a situation of bilateral monopoly. Institutions which have arisen to avert the associated inefficiency cannot mimic the separation decisions of a perfect-information, first-best allocation rule. Simple employment rules based on predetermined or indexed wages are in many cases the most desirable among the class of feasible employment arrangements. More complicated contracts which seem to deal more effectively with turnover issues are either infeasible because of informational requirements or create adverse incentives on some other dimension.

Suggested Citation

Hall, Robert E. and Lazear, Edward P., The Excess Sensitivity of Layoffs and Quits to Demand (February 1982). NBER Working Paper No. w0864. Available at SSRN: https://ssrn.com/abstract=351394

Robert E. Hall (Contact Author)

Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

Stanford, CA 94305-6010
United States
650-723-2215 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
650-723-2215 (Phone)

Edward P. Lazear

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9136 (Phone)
650-723-0498 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Paper statistics

Downloads
21
Abstract Views
377