Two-Sided Learning, Labor Turnover, and Worker Displacement

We remedy several deficiencies in the recent literature on job loss while modernizing the very early job-displacement literature. After constructing a structural model of two-sided learning between a firm and its workers, we estimate it using personnel data from Fokker Aircraft in the Netherlands that cover the path of layoffs and quits up to and including its bankruptcy in March 1996. We find that the firm learns about the workers’ loyalty (demonstrating the role of information in repeated principal-agent relationships), while workers do not learn (consistent with earlier empirical results on American workers). The type of data that we use also generates information on the value of learning and on whether and how the characteristics of workers who remain until the firm’s death differ from those of all of its affected workers. It thus allows us to infer the extent of biases in measuring the losses arising from displacement if the sample is restricted to displaced workers.