Downsizing the Hierarchical Workplace: The Role of Firing Costs

This paper finds (i) that within skill groups firing costs are higher at the top of the hierarchy than at the bottom; and (ii) that the difference in firing costs between skill groups rises with authority. To assess quantitatively how these findings influence the internal restructuring at a large firm a hierarchical decision model is estimated using personnel data from a Dutch aerospace firm in demise. The model proves to be sufficiently flexible to explain the non-monotonic changes in authority observed across the firm’s entire job structure. Model simulations show that the combination of the within and between effects of firing costs give rise to a larger wage discrepancy between skill groups in the course of downsizing.

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