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A Simple Model of Severance Pay Determination: The Case of Individual Dismissals in Spain

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Author Info
Miguel Á. Malo

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Abstract

In this article we model the determinants of severance pay for individual dismissals in Spain, following an idea proposed by Jimeno and Toharia (Economistas 55: 243-255, 1993). We point out the importance of severance pay settled before judgment, since the legal framework creates a bargaining space to determine the amount paid by firms in cases of individual dismissal. The model is a simple pre-trial bargaining game between the firm and the worker. It predicts a higher settled severance pay for dismissals on economic grounds than on disciplinary ones, which could explain the perceptions held about the wide use of disciplinary dismissals in Spain. In addition, this approach could be useful in designing labour market reforms aimed at changing dismissal costs, because it allows us to determine the key variables affecting settled severance pay. Our simple model predicts that the key variables for Spain are the severance pay for unfair dismissal and the probability of unfair dismissal. Copyright Fondazione Giacomo Brodolini and Blackwell Publishers Ltd 2000.

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Publisher Info
Article provided by CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd in its journal Labour.

Volume (Year): 14 (2000)
Issue (Month): 2 (06)
Pages: 269-290
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Handle: RePEc:bla:labour:v:14:y:2000:i:2:p:269-290

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  1. Miguel Angel Malo, . "La regulación del despido disciplinario: Un análisis económico," Studies on the Spanish Economy 150, FEDEA. [Downloadable!]
  2. Christian Grund, 2006. "Severance payments for dismissed employees in Germany," European Journal of Law and Economics, Springer, vol. 22(1), pages 49-71, July. [Downloadable!] (restricted)
    Other versions:
  3. Bruno Deffains & Yannick Gabuthy & Eve-Angéline Lambert, 2007. "Labor Conflicts and Inefficiency of Relationship-Specific Investments: What is the Judge's Role?," Working Papers of BETA 2007-04, Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg. [Downloadable!]
  4. Laszlo Goerke & Markus Pannenberg, 2005. "Severance Pay and the Shadow of the Law: Evidence for West Germany," Discussion Papers of DIW Berlin 541, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  5. Malo, M.A aand Joaquin Pérez., 2002. "Individual dismissals in Europe and the United States: A model on the influence of the legal framework on firing costs," Doctorado en Economía- documentos de trabajo 9/02, Programa de doctorado en Economía. Universidad de Alcalá.. [Downloadable!]
    Other versions:
  6. Miguel Malo, 2001. "European Labour Law and Severance Pay Determination in Collective Redundancies," European Journal of Law and Economics, Springer, vol. 12(1), pages 73-90, July. [Downloadable!] (restricted)
  7. Pilar García-Martínez & Miguel Malo, 2007. "The strategic use of dismissal legislation: an empirical analysis using Spanish data," European Journal of Law and Economics, Springer, vol. 23(2), pages 151-167, April. [Downloadable!] (restricted)
  8. Dolado, Juan J. & Garcia-Serrano, Carlos & Jimeno, Juan Francisco, 2001. "Drawing Lessons From the Boom of Temporary Jobs in Spain," CEPR Discussion Papers 2884, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  9. Christian Grund, 2004. "Severance Payments for Dismissed Employees Severance Payments for Dismissed Employees in Germany," Bonn Econ Discussion Papers bgse4_2004, University of Bonn, Germany. [Downloadable!]
  10. Christian Grund, 2006. "Overcompensation by severance payments," Applied Economics, Taylor and Francis Journals, vol. 38(8), pages 925-930, May. [Downloadable!] (restricted)
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