Naming the Puppy: Firing Aversion and the Labor Market
In fiction (and “reality” television), firing workers almost seems fun. How many times has Mr. Burns gleefully hissed, “Fire than man, Smithers!”? In the real world, though, bosses dislike being the bearer of bad news. They feel guilty when they let someone go. So guilty, in fact, that some hire consultants to help them fire people. To coin a behavioral econ phrase, most employers feel “firing aversion.”
How does firing aversion play out in the real world? For starters:
1. Firms often fail to hire workers who would be profitable in the short-run. Why? Because in the medium- or long-run, conditions might change. Robots would respond by coldly discarding superfluous workers. But many human bosses won’t. A human boss might feel guilty enough to continue paying the worker more than he’s worth. Or he might fire the worker and feel like a jerk. Either way, it’s not like returning a pair of pants to CostCo. Upshot: If a job candidate is a close call, a boss who foresees his own psychological reaction will say, “No thanks.”
2. Signaling matters more. Suppose bosses can learn workers’ abilities in one of two ways: (a) Examine their educational credentials, or (b) give them a chance to prove themselves on the job. For robots, (b) might be an attractive option. For human bosses, however, (a) has more appeal. If you hire based on credentials, you never even have to meet most of the subpar candidates. If you hire based on trial-and-error, in contrast, you get to know a lot of people, then dash their dreams. Once again, a boss who foresees his own psychological reaction tailors his strategy accordingly.
3. Outsourcing looks better. For most people, firing a visible human being hurts a lot more than firing a company. Firing a gardening firm doesn’t feel so bad. Firing a gardener does. As a result, firms will outsource more than narrow profit-maximization recommends.
Big picture: When you hire someone, you “name the puppy.” You accept them into your tribe. Yes, their initial status is relatively low. But if you’re psychologically normal, the lowest member of your tribe still counts in your eyes. You’ll exile a person from your tribe if they’re a massive burden or a traitor. But if they’re merely a moderate disappointment, you’ll probably show mercy and lend them a hand.
This may sound good. But it’s a mixed bag at best. Yes, firing aversion makes life more secure for the employed. But it also makes it harder to find a job in the first place. From a social point of view, the labor market would work better if employers were as free of firing aversion as robots.
P.S. Two requests for the comments:
1. Can you name additional plausible real-world effects of firing aversion?
2. Do you have any real-world examples to share (with names changed to protect the guilty)?