Last-in, first-out rules, productivity, and severance pay

The purpose of this project is to quantify the efficiency costs associated with last-in, first-out (LIFO) rules by examining how much employers are willing to pay to circumvent them. Specifically, we examine: (i) the extent to which productivity-based rankings drive deviations from LIFO rules; (ii) the trade-offs firms make between complying with the rules and retaining highly productive employees; and (iii) the financial compensation paid by employers to workers with greater seniority.

To examine how LIFO rules affect firms’ behavior, we use data on redundancy notifications from the Swedish Public Employment Service linked to administrative registers. Although the law stipulates that employers should follow the last-in, first-out principle, deviations from the rule are permitted if an agreement is reached with a trade union, often in exchange for concessions such as severance pay. This allows us to compare compliance with LIFO rules with workers’ productivity rankings within the workplace.

Project leader

Jonas Cederlöf

Other project participants

Martin Häggkvist