Lay-offs and Productivity at a Bangladeshi Sweater Factory

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.