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Firing Costs, Employment Fluctuations and Average Employment: An Examination of Germany

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  • Jennifer Hunt

Abstract

West Germany's Employment Promotion Act of 1985 facilitated the use of fixed‐term contracts and increased the number of dismissals above which the employer is required to establish a ‘social plan’ (involving severance payments). I assess the effect of this reduction in ‘firing costs’ on movements in employment, using monthly data on a panel of detailed manufacturing industries for 1977‐92. I also examine the effect of introducing flexible hours of work in certain industries beginning in 1985. I find that employment adjustment was unaffected by the lower firing costs, but slowed by the greater working hours flexibility.

Suggested Citation

  • Jennifer Hunt, 2000. "Firing Costs, Employment Fluctuations and Average Employment: An Examination of Germany," Economica, London School of Economics and Political Science, vol. 67(266), pages 177-202, May.
    • Handle: RePEc:bla:econom:v:67:y:2000:i:266:p:177-202
    DOI: 10.1111/1468-0335.00203
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    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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