Recall bias in the displaced workers survey: Are layoffs really lemons?

This paper examines how the extent of recall bias in the Displaced Workers Surveys affects the often-cited empirical results found by Gibbons and Katz [Gibbons, R., Katz, L.F., 1991. Layoffs and lemons. Journal of Labor Economics 9 (4), 351−380] for the lemons effect of layoffs. Their finding that workers displaced by layoffs experience larger wage losses than do those displaced by plant closings is not due to the stigma attached to the layoff events. Rather it partly stems from recall bias in the 1984 and 1986 DWS, but mostly reflects the fact that workers displaced by layoffs have significantly higher predisplacement wage-tenure profiles than do those displaced by plant closings, while there is no such difference in postdisplacement wage-tenure profiles. A similar analysis using the 2000 and 2002 DWS shows that predisplacement wage losses are not different between workers displaced by layoffs and those displaced by plant closings.