Work organization, employment security, and macroeconomic stability

Abstract

There is substantial evidence that both training and worker participation in decision making are more effective when employers avoid layoffs. When one company's choice to avoid layoffs affects the relative costs of layoffs for other firms, there is an externality and multiple equilibria are possible. If all firms lay off workers in recessions, then recessions will be deeper. Deep recessions, in turn, raise the costs of firms that have high levels of training, participation and employment security. On the other hand, if all firms have no-layoff policies, then recessions will be shallower, lowering the costs of such policies. In three data sets, training and participation are more common in companies with high levels of job security.