Andreas Kostøl, Arizona State University

"Employee Turnover and Selection on Layoff Costs"


While layoff causes long-lasting earnings losses, workers sometimes leave their employer in anticipation of it. In this paper, we examine how this selection affects layoff costs using the random assignment of bankruptcy judges as an instrument for layoff risk. We find that employer shutdown reduces five-year earnings by 24% while one-quarter of employees avoid layoff. Furthermore, turnover triples and wage losses fall by 56% when moving from weak to strong labor markets. Using a job ladder framework, we show that this turnover biases micro-level estimates of layoff costs by 15% and overstates the value of employers and public insurance.

Joint work with Morten H. Grindaker and Matthew C. Merkle.

Link to most recent version

Contact person: Jakob Egholt Søgaard