Re-Employment Bonuses in a Signalling Model of Temporary Layoffs

18 Pages Posted: 2 Sep 2004

See all articles by Núria Rodríguez-Planas

Núria Rodríguez-Planas

City University New York (CUNY), Queens College; IZA Institute of Labor Economics

Date Written: February 2004

Abstract

Temporary layoffs are an important feature of the United States labor market. If these employer-employee relationships exist because of valuable job-matches, unemployment among high-productivity laid-off workers may be optimal from societal perspective. However, because of asymmetric information, low-productivity workers may behave strategically, and choose unemployment instead of low-wage jobs, resulting in an inefficient level of unemployment. This paper shows that in such cases, a re-employment bonus may give the correct incentives to laid-off workers and achieve the optimal equilibrium. The paper analyzes the equity properties of such a policy and its cost effectiveness. Finally, the model fits the data and offers several policy implications.

Keywords: temporary layoffs, recall expectations, unemployment, signalling and re-employment bonus demonstrations

JEL Classification: J63, J64, J65

Suggested Citation

Rodriguez-Planas, Nuria, Re-Employment Bonuses in a Signalling Model of Temporary Layoffs (February 2004). Available at SSRN: https://ssrn.com/abstract=504444

Nuria Rodriguez-Planas (Contact Author)

City University New York (CUNY), Queens College ( email )

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Flushing, NY 11367-1597
United States

HOME PAGE: http://https://sites.google.com/site/nuriarodriguezplanas/

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

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