The Hidden Costs of Dismissal: Behavioral Consequences of Impending Termination
(with Timo Vogelsang)
Journal of Labor Economics (forthcoming)

Abstract: This study investigates the impact of impending termination on employee behavior, using comprehensive data from 3,340 employees of a retail chain. Employees who were dismissed exhibit a sharp increase in absenteeism around the time they were given notice. In contrast, employees who resigned show only a moderate increase in absenteeism toward the end of their employment relationship, which is, however, not particularly pronounced around the time they gave notice. The conclusion of a mutual termination agreement between the employer and the employee even tends to be followed by a decrease in absenteeism.

Abstract: We present a natural field experiment on promoting pay equity through simple modifications to the salary review process in a large technology firm, involving 623 middle managers and 8,951 employees. Our treatments provided for a gender-blind reallocation of the salary increase budget available to middle managers aimed at pay equity, along with different variants of corresponding decision guidance. All treatments substantially reduced the gender gap in salary increases, going well beyond a purely mechanical effect of the budget reallocation. Moreover, the treatments do not appear to have undermined warranted performance differentiation in salary increases.

Abstract: This study examines the relationship between absenteeism and firm performance using data on 1,387 stores of a retail chain, combined with public health data, covering a 36-month period. Crucially, the relationship between absenteeism and sales is not monotonic. Instead, it exhibits an inverted U-shape. This indicates that a reduction in absenteeism does not necessarily result in improved firm performance. In fact, moderate absenteeism is associated with higher sales than perfect attendance. Moreover, if the actual level of absenteeism is below the level expected due to the regional acute spread of respiratory disease, this is associated with lower sales than if both align. A similar relationship is also observed between absenteeism and measures of service quality. Endogeneity concerns are addressed using fixed effects regression and instrumental variable estimation. In conclusion, the results demonstrate that absenteeism is not generally detrimental to firm performance. It is therefore not advisable to attempt to avoid absenteeism altogether.