Escaping social pressure: Fixed-term contracts in multi-establishment firms

We develop a simple theoretical model showing that, by adding to the adjustment costs associated with permanent contracts, local social pressure against dismissals creates an incentive for CEOs to rely on fixed-term contracts, in an attempt to escape social pressure. Using linked employer-employee d...

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Bibliographic Details
Published in:Journal of economic behavior & organization 2021-08, Vol.188, p.697-715
Main Authors: Bassanini, Andrea, Caroli, Eve, Fontaine, François, Rebérioux, Antoine
Format: Article
Language:English
Subjects:
Adjustment costs
CEO reputation
Employment contracts
Quantitative Finance
Social pressure
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Summary:We develop a simple theoretical model showing that, by adding to the adjustment costs associated with permanent contracts, local social pressure against dismissals creates an incentive for CEOs to rely on fixed-term contracts, in an attempt to escape social pressure. Using linked employer-employee data, we show that establishments located closer to headquarters have higher shares of fixed-term contracts in hiring than those located further away whenever firms' headquarters are located in self-centered communities and the CEO not only works but also lives there. We show that these findings can only be explained by local social pressure.
ISSN:0167-2681
1879-1751
0167-2681
DOI:10.1016/j.jebo.2021.05.027