Why Do Worker-Firm Matches Dissolve?

41 Pages Posted: 16 Aug 2006

See all articles by Anne C. Gielen

Anne C. Gielen

Institute for the Study of Labor (IZA); Maastricht University

Jan C. van Ours

Tilburg University - Department of Economics; University of Melbourne - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 2006

Abstract

In a dynamic labor market worker-firm matches dissolve frequently causing workers to separate and firms to look for replacements. A separation may be initiated by the worker (a quit) or the firm (a layoff), or may result from a joint decision. A dissolution of a worker-firm match may be inefficient if it can be prevented by wage renegotiation. In this paper we study worker separations in the Dutch labor market. From an analysis of matched worker-firm data we conclude that both quits and layoffs are less likely to occur in high quality matches. We also find that workers with a high propensity to quit are offered higher wages to prevent them to quit. Similarly, workers with a high layoff probability give up some of their wage to prevent them from being laid-off. Despite these wage renegotiations some inefficiency in separations remains. However, there is a clear difference between quits and layoffs. Whereas inefficient quits are rare inefficient layoffs occur frequently. These phenomena may be related to downward wage rigidity. While it is easy to renegotiate higher wages to prevent quits it is much more difficult to renegotiate lower wages to prevent layoffs even if that would overall be beneficial to the workers involved.

Keywords: Separations, quits, layoffs, matched worker-firm dataset

JEL Classification: J31, J63, M51

Suggested Citation

Gielen, Anne C. and van Ours, Jan C., Why Do Worker-Firm Matches Dissolve? (July 2006). CEPR Discussion Paper No. 5739. Available at SSRN: https://ssrn.com/abstract=924386

Anne C. Gielen

Institute for the Study of Labor (IZA) ( email )

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

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands
+31 43 3883887 (Phone)
+31 43 3881450 (Fax)

HOME PAGE: http://www.annegielen.nl

Jan C. Van Ours (Contact Author)

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2880 (Phone)
+31 13 466 3042 (Fax)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

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