Abstract
We study how firms adjust labor in response to adverse shocks—via layoffs or pay cuts—and the reasoning behind it. To do so, we design and implement a novel large-scale survey of firms in Denmark and link it to administrative data. We find that layoffs are prevalent, even when the government-sponsored furlough schemes are available. Second, pay cuts occur, but are less common than layoffs. Third, firms do not consider pay cuts a viable substitute for layoffs during crises. Some layoffs during a crisis are not caused by the crisis. Rather, a crisis is an opportune time for firms to lay off low-productivity workers. Furthermore, the size of a hypothetical pay cut needed to save a layoff is large or unknown. Fourth, losing worker skills and subsequent search and matching costs are key considerations in the layoff decision. Morale considerations are not important for layoff but play a role in pay-cut decisions.
The seminar will be held in room 1249 (12th floor) at Eilert Sundts Hus. The address is Moltke Moes vei 31.