Work in Progress

We propose the first study testing firms’ demand for insurance against layoff costs. Job-loss insurance policies for workers, such as severance pay, impose substantial financial burdens on firms precisely when they face shocks motivating layoffs. We evaluate demand for a novel product, Severance Insurance, which protects firms against these costs, among formal employers in Addis Ababa, Ethiopia. Guided by a model of firm behavior in the presence of layoff risk and Severance Insurance, we estimate key parameters to assess the welfare effects of this product: firms’ value of insurance and adverse selection in insurance purchase. We also provide evidence of hypothetical behavioral responses to insurance, including moral hazard through increased layoffs, firm growth and workforce formalization. Our findings offer critical insights for designing employer-based social insurance policies and shed light on firms’ capacity to manage risk.

@unpublished{abebe2025designing,
  author = {Abebe, Girum and Caria, Stefano and Spaziani, Sara and Hensel, Lukas and Gerard, François},
  title  = {{Designing Severance Insurance: Theory and Evidence from Ethiopia}},
  year   = {2025},
  note   = {Conditionally accepted based on pre-results review: Journal of Development Economics}
}

Worker sorting into tasks and occupations has long been recognized as an important feature of labor markets. But this sorting may be inefficient if jobseekers have imperfect information about their skills and therefore apply to jobs that poorly match their skills. To test this idea, we study two field experiments that give young South African jobseekers information on their results from standardized assessments of job-relevant skills. Information redirects jobseekers’ search toward jobs that value skills where they score relatively highly, without raising their search effort. Information also substantially raises earnings, consistent with inefficient sorting due to imperfect information.

@unpublished{kiss2024jobseekers,
  author = {Kiss, Andrea and Garlick, Robert and Orkin, Kate and Hensel, Lukas},
  title  = {{Jobseekers’ Beliefs about Comparative Advantage and (Mis)Directed Search}},
  year   = {2024},
  note   = {Resubmitted to AEJ: Applied. Author order randomized}
}

Formatted for econ.bst.

Job loss is an understudied risk for formal workers in lower-income countries. In these settings, lump-sum severance pay is often the only source of job-loss insurance. We quasi-experimentally show that female factory workers in Ethiopia displaced by a tariff hike experience lasting declines in employment and consumption spending, and rising poverty. Experimentally, we find that additional lump-sum support induces early spending and reduces overall and manufacturing employment persistently. Disbursing an equivalent amount in tranches improves consumption smoothing and avoids adverse employment effects. Further, we document a high willingness to pay for additional insurance, alongside heterogeneous preferences over disbursement modality that shape responses to our interventions. These findings imply that increasing job-loss insurance raises welfare, although moving away from the lump-sum default can generate substantial additional gains.

@techreport{hensel2026mitigating,
  author      = {Hensel, Lukas and Abebe, Girum and Gerard, François and Caria, Stefano},
  title       = {{Mitigating the Consequences of Job Loss in Lower-Income Countries: Evidence from Ethiopia}},
  institution = {IZA Institute of Labor Economics},
  type        = {IZA Discussion Paper},
  number      = {18537},
  year        = {2026},
  note        = {Author order randomized}
}

Formatted for econ.bst.

We conduct a field experiment with job seekers to investigate how feedback influences job search and labor market outcomes. Job seekers who receive feedback on their ability compared to other job seekers update their beliefs and increase their search effort. Specifically, initially underconfident individuals intensify their job search. In contrast, overconfident individuals do not adjust their behavior. Moreover, job seekers’ willingness-to-pay (WTP) for feedback predicts treatment effects: only among underconfident individuals with positive WTP, we observe significant increases in both search effort and search success. We present suggestive evidence that this pattern arises from heterogeneity in how job seekers perceive the relevance of relative cognitive ability to job search returns. While the intervention appears cost-effective, job seekers’ WTP remains insufficient to cover its costs.

@techreport{tekleselassie2026feedback,
  author      = {Tekleselassie, Tsegay and Witte, Marc and Radbruch, Jonas and Hensel, Lukas and Isphording, Ingo E.},
  title       = {{Feedback, Confidence and Job Search Behavior}},
  institution = {IZA Institute of Labor Economics},
  type        = {IZA Discussion Paper},
  number      = {17761},
  year        = {2026},
  note        = {Author order randomized}
}

Formatted for econ.bst.

How does manager quality affect subordinates’ career progression? We leverage frequent worker-manager reassignments to identify the causal effect of manager quality on workers’ career outcomes in the context of managerial teams at a large construction firm. Using both difference-in-differences and instrumental variable approaches, we find that exposure to a high-quality manager increases workers’ subsequent promotion rates by 9 to 13 percentage points. We provide evidence in support of managerial human capital transmission as the primary mechanism: effects are concentrated among workers and positions that require most managerial skills, and exposed workers earn significantly higher performance-based bonuses.

@techreport{chen2026followers,
  author      = {Chen, Yuyu and Hensel, Lukas and Yao, Xinjue},
  title       = {{From Followers to Leaders: The Career Impact of High-quality Managers}},
  institution = {IZA Institute of Labor Economics},
  type        = {IZA Discussion Paper},
  number      = {17848},
  year        = {2026}
}

Wage information is rare in job adverts, yet crucial for search. To study this information friction, we run a field experiment with real vacancies, randomly adding or withholding wage information. Disclosing wages does not change average application volumes. Instead, it amplifies the wage elasticity of applications: higher-wage vacancies receive more applicants, while lower-wage vacancies receive fewer. Average applicant quality remains unchanged, challenging standard directed search models. We rationalize the lack of skill-based sorting with two-sided limited information about applicants’ skills. We further show that firms’ decision not to post wages can act as insurance against unproductive matches.

@techreport{balgova2025wage,
  author      = {Balgova, Maria and Tekleselassie, Tsegay and Hensel, Lukas and Witte, Marc},
  title       = {{Wage Information and Applicant Selection}},
  institution = {IZA Institute of Labor Economics},
  type        = {IZA Discussion Paper},
  number      = {18220},
  year        = {2025},
  note        = {Author order randomized}
}

Formatted for econ.bst.

Social norms are crucial drivers of human behavior. However, misperceptions of others’ opinions may sustain norms and conforming behavior even if a majority opposes the norm. Privately shifting individuals’ beliefs about true societal support may be insufficient to change behavior if others are perceived to continue to hold incorrect beliefs (“lack of mutual knowledge”). We conduct a field experiment with 5,201 women in Kyrgyzstan to test whether creating mutual knowledge about social norms affects how perceived social norms influence behavior. We show that providing information about societal support for female political activism alone does not affect women’s political engagement. However, when perceived mutual knowledge is created, the effect of information about social norms increases significantly. Using vignette experiments, we show that the effect of mutual knowledge on social punishment is a plausible mechanism behind the behavioral impact. These findings suggest that higher-order beliefs about social norms are an important force linking social norms and behavior.

@techreport{hager2025mutual,
  author      = {Hager, Anselm and Kazakbaeva, Elnura and Hensel, Lukas and Esenaliev, Damir},
  title       = {{Mutual Knowledge of Social Norms and Political Behavior}},
  institution = {IZA Institute of Labor Economics},
  type        = {IZA Discussion Paper},
  number      = {17748},
  year        = {2025},
  note        = {Author order randomized}
}

Formatted for econ.bst.