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Lay-offs and Productivity at a Bangladeshi Sweater Factory

Robert Akerlof, University of Warwick; Anik Ashraf, LMU Munich; Rocco Macchiavello, LSE; Atonu Rabbani, University of Dhaka; Christopher Woodruff, University of Oxford

D10 Empirics of Relational Contracts
Room Ragnar

Abstract

In this paper, we try to understand how firing of workers in an organization affect the productivity of the surviving co-workers. We take advantage of detailed individual-level production records from, and extensive fieldwork conducted at, a large Bangladeshi sweater factory before, during and after several episodes of labour unrests that eventually led the management to fire numerous workers (approximately 25% of the labour force in the relevant production floor). Exploiting across-worker variation in exposure to co-workers firing, we document a negative impact of firing on productivity of surviving workers. Additional evidence rules out a number of competing mechanisms such as subsequent targeted punishments from management, loss of productive peers, or attention diverted to help recently hired and inexperienced co-workers. We argue that the effects are likely driven by feeling of loss, or anger towards the management and by a less enjoyable workplace.