Lay-Offs As Signals: The Canadian Evidence

In R. Gibbons and L. F. Katz (1991), the signaling content of layoffs and the resulting costs to the displaced workers are investigated. Evidence of this signaling effect is found among displaced workers in the United States. In this paper, a similar exercise is conducted using Canadian data, which are better in several respects: they provide information on union status, search activity, and more accurate measures of postdisplacement salaries and displacement length. Results show evidence of a signaling effect in white-collar occupations but not in blue-collar jobs regardless of union status. Also, signaling effects persist for the first three years in the postdisplacement job.