UC Berkeley

Using matched employer-employee data on the universe of mass layoffs in West Germany from 1980 to 2009, I characterize each of the 4,400 mass layoffs by the relative probabilities of displacement for different types of workers. I find substantial heterogeneity in layoff rules across establishments, with the most common types being based on relative tenure, relative wages, or occupation. Laying off workers with low tenure--which I interpret as a less selective layoff rule--has become less common, while laying off workers with low relative wages--which I interpret as a more selective layoff rule--has become more common. I also find an increase in wage-based layoffs and a decrease in tenure-based layoffs in recessions.

In the second chapter, I test for asymmetric information in the labor market by studying how earnings losses of displaced workers vary with the degree of selection in employers' layoff decisions. I develop an asymmetric employer learning model with heterogeneous firing costs that implies that earnings losses are smaller for workers involved in tenure-based layoffs, since these layoffs do not serve as a negative signal of workers' productivity. I find strong support for this prediction: earnings losses are 20% smaller for workers displaced in tenure-based layoffs than observationally equivalent workers displaced in other layoffs. Selective layoffs are particularly costly for less-educated workers and workers in high-skilled service occupations, suggesting that asymmetric learning by incumbent employers is more prevalent for these groups.