Cost Efficiency and Employee Layoffs in the Banking Industry

Abstract

This paper investigates cost efficiency of banks that laid off employees. Using a stochastic frontier method, we find that these banks are more cost efficient before the layoffs when compared to a group ofnonlayoffbanks. Their cost efficiency, however, declines during the layoff period and does not appear to improve within two years following the layoffs. Our results are not consistent with the general notion that bank layoffs improve cost efficiency. (G21, G34, Cl3)