When facing negative productivity shocks, how do firms choose between wage cuts and layoffs? Empirically, those that fire more workers cut wages the least– a pattern often attributed to exogenous wage rigidity. I argue instead that it reflects firms’ active choice: layoffs help firms improve workforce composition, making wage cuts less desirable. I develop an equilibrium search model where firms employ risk-averse workers of varying match productivity on dynamic contracts. Although in principle the firm has to manage individual contracts with a continuum of employees, I show that the model can be solved tractably and equivalently with tenure-specific contracts. To facilitate the role of layoffs, I assume that, within a cohort, the firm is not allowed to wage discriminate, but can fire freely. This constraint induces firms to shed low-productivity matches while smoothing wages of the survivors. The model uniquely predicts that this layoff–wage rigidity relationship arises not only across firms but also within firms, across worker tenure. Using matched employer–employee data from France, I document that junior workers face up to five times higher layoff risk than senior workers yet experience virtually no wage pass-through, consistent with the theoretical prediction. Policy analysis of the quantified model shows that minimum wage, a source of exogenous wage rigidity, has minimal impact on both job-finding and layoff rates.