Worker Beliefs about Layoff Risk

Abstract

Job loss is one of the most costly economic risks workers face, but a firm’s layoff risk is difficult to observe. We document substantial, persistent variation in firm layoff rates, creating scope for workers to change their job loss risk through firm choice. We exploit linked survey, experimental, and administrative data from Austria to examine how unemployed workers perceive and respond to information about firm-level layoff risk. Workers believe that past layoffs predict future risk and prefer jobs at firms with lower historical layoff rates but have significant misperceptions about which firms are safer. Providing workers with information about firm layoff histories causes them to redirect their search toward historically safer employers. Using a search and matching model, we show that imperfect information distorts equilibrium outcomes: it reverses the compensating differential for layoff risk and raises the average layoff rate by allocating more workers to high-risk firms.