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

Table 2 First-stage regression (probit)

Dependent variable: wage cut = 1	(1)	(2)
Performance pay = 1	−0.0069	−0.008
	(0.0036)	(0.004)
ln(capital size (million yen))/100	0.037	0.012
	(0.056)	(0.058)
Firm Age/1000	0.029	0.031
	(0.051)	(0.050)
Limitation for voluntary retirement	–	0.019
		(0.016)
Reason for downsizing dummies
To cope with critical management adversity expected in the future	–	0.021
		(0.014)
To cope with a present, temporary profit reduction	–	0.006
		(0.012)
To improve earnings by focusing on the company’s specialty	–	−0.003
		(0.005)
No response	–	0.004
		(0.003)
Foundation year dummies	Yes	Yes
Pseudo-R²	0.024	0.048
N	1491	1491

Note: Standard errors clustered at an industry level are reported in parentheses. Marginal effects evaluated at the mean of the covariates are reported. One question concerns the application criteria for and limitations on 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. The reference group for the downsizing reason dummies is “To Cope with Present Critical Management Adversity.” For firms that had not yet laid off workers, the question on downsizing asks about the main possible reason for the potential downsizing