Volume 36, Number 1 (Winter) 2001
Pencavel, John. 2001. "The Response of Employees to Severance Incentives: The University of California's Faculty, 1991-94." Journal of Human Resources 36(1):58-84.
In response to huge budgetary shortfalls in the early 1990s, the University of California offered its older and longer-service employees financial inducements to leave. This paper analyzes the responses of UC's faculty to three waves of buyout incentives. It is estimated that an individual presented with 10 percent higher severance benefits has a 7-8 percent higher probability of quitting. However, quit probabilities are very difficult to forecast with accuracy. This casts doubt on arguments that maintain that buyouts are superior to employer-initiated layoffs as a mechanism to effect large employment changes.
John Pencavel is a professor of economics at Stanford University. The research reported in this paper was supported by a grant from the Mellon Foundation. For help collecting the data and understanding the severance programs, the author is most grateful to a number of people in the Office of the President of the University of California and especially Judy Ackerhalt, Nancy Capell, James Litrownik, and Ellen Switkes. This draft has benefitted from comments on previous drafts by Wilbert van der Klaauw, Neil Smelser, Lynne Zucker, and two anonymous referees. Excellent research assistance from Tracy Falba and Akila Weerapana is acknowledged.
© 2002 by the Board of Regents of the University of Wisconsin System
US ISSN 0022-166X