You are fired! Employees' Response to Work Norm Violations

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  • You are fired! Employees' Response to Work Norm Violations
  • Abstract:
    Akerlof's gift exchange hypothesis posits that employees punish their employer for violating established work norms even if they are not directly affected. This hypothesis is difficult to test in the field since any norm violation in a long-lived organization may change the employees' beliefs about their career prospects. We create a short-lived organization and hire workers to conduct a telephone survey. Then we lay off some workers while keeping the remaining workers' prospects constant. In the main treatment, layoffs are communicated as a measure to reduce costs. Workers regard this measure as unfair behavior towards their colleagues. The announcement reduces workplace performance by 12 percent. We verify that this result is not driven by peer effects, altered beliefs about the job, the intensity of monitoring, or the management's competence. It provides a rationale for human resource practices that alleviate negative consequences from decisions that may be interpreted as norm violations.