Optimal combination of wage cuts and layoffs—the unexpected side effect of a performance-based payment system

Table 1 Descriptive statistics

	(1)	(2)	(3)
	All	Performance pay = 1	Performance pay = 0
Firm age	60.330	60.415	60.292
	(37.644)	(41.392)	(35.866)
Capital size (million yen)	5746.805	4241.802	6418.290
	(55,183.413)	(14,671.411)	(65,633.987)
Layoff = 1	0.036	0.037	0.035
Performance pay = 1	0.309	1.000	0.000
Wage cut = 1	0.011	0.007	0.013
Limitation for voluntary retirement = 1	0.012	0.017	0.010
Reason for downsizing dummies
To cope with present critical management adversity	0.185	0.193	0.181
To cope with critical management adversity expected in the future	0.183	0.180	0.184
To cope with a present, temporary profit reduction	0.087	0.091	0.085
To improve earnings by focusing on the company’s specialty	0.043	0.050	0.040
No response	0.013	0.024	0.008
Observations	1491	460	1031

Note: Standard deviations are in parentheses. One question concerns the application criteria and limitations regarding eligibility for voluntary retirement and the early retirement incentive plan. “Limitation for Voluntary Retirement” takes the value of 1 if the firm circled at least one of the following categories: age, tenure, position, job type, and department. For firms that had not yet laid off workers, the question about the reason for downsizing asks about the main possible reason for the potential downsizing