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Severance Payments and Firm-specific Human Capital

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Author Info
Jens Suedekum () (University of Goettingen, Germany)
Peter Ruehmann (University of Goettingen, Germany)

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Abstract

What effect does employment protection through severance payments have on the behaviour of employed workers? We analyse this issue within a stochastic two-period framework where workers decide on human capital investments and find two competing effects: severance payments imply higher job security that fosters human capital formation. At the same time, a lay-off is perceived by the workers to be a weaker penalty if severance payments are provided. This incentive lowers their optimal amount of firm-specific investments. Which effect prevails on balance depends on the distribution of investment returns among firm and workers. For strong positive reactions, employment protection is also in the interests of the firm. Copyright Fondazione Giacomo Brodolini and Blackwell Publishing Ltd 2003.

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

Volume (Year): 17 (2003)
Issue (Month): 1 (03)
Pages: 47-62
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Handle: RePEc:bla:labour:v:17:y:2003:i:1:p:47-62

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August. [Downloadable!] (restricted)
  2. Kuhn, Peter, 1992. "Mandatory Notice," Journal of Labor Economics, University of Chicago Press, vol. 10(2), pages 117-37, April. [Downloadable!] (restricted)
  3. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 381-402, July. [Downloadable!] (restricted)
  4. Pierre Cahuc & André Zylberberg, 1999. "Redundancy Payments, Incomplete Labor Contracts, Unemployment and Welfare," IZA Discussion Papers 96, Institute for the Study of Labor (IZA). [Downloadable!]
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  5. Ichino, Andrea & Riphahn, Regina T., 2001. "The Effect of Employment Protection on Worker Effort: A Comparison of Absenteeism During and After Probation," IZA Discussion Papers 385, Institute for the Study of Labor (IZA). [Downloadable!]
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  6. Levine, David I, 1991. "Just-Cause Employment Policies in the Presence of Worker Adverse Selection," Journal of Labor Economics, University of Chicago Press, vol. 9(3), pages 294-305, July. [Downloadable!] (restricted)
  7. Acemoglu, Daron & Pischke, Jörn-Steffen, 2001. "Minimum Wages and On-the-Job Training," IZA Discussion Papers 384, Institute for the Study of Labor (IZA). [Downloadable!]
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  8. Alvarez, Fernando & Veracierto, Marcelo, 2001. "Severance payments in an economy with frictions," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 477-498, June. [Downloadable!] (restricted)
  9. Addison, John T. & Teixeira, Paulino, 2001. "The Economics of Employment Protection," IZA Discussion Papers 381, Institute for the Study of Labor (IZA). [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thies Büttner & Robert Schwager, 2003. "Regionale Verteilungseffekte der Hochschulfinanzierung und ihre Konsequenzen," Departmental Discussion Papers 119, University of Goettingen, Department of Economics. [Downloadable!]
  2. Salvatore Barbaro, 2003. "The Combined Effect of Taxation and Subsidization on Human Capital Investment," Departmental Discussion Papers 116, University of Goettingen, Department of Economics. [Downloadable!]
  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. "Berufliche Weiterbildung "on-the-job" und Auflösung von Beschäftigungsverhältnissen," Working Papers of the Research Group Heterogenous Labor 04-22, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim. [Downloadable!]
  5. Grund, Christian, 2003. "Severance Payments for Dismissed Employees in Germany," IZA Discussion Papers 875, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Salvatore Barbaro & Jens Südekum, 2004. "Reforming a complicated income tax system: The political economics perspective," Departmental Discussion Papers 120, University of Goettingen, Department of Economics. [Downloadable!]
  7. 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!]
  8. Petra Enß & Robert Schwager, 2006. "Kommunaler Finanzausgleich und Gewerbesteuerhebesätze in Niedersachsen," Departmental Discussion Papers 127, University of Goettingen, Department of Economics. [Downloadable!]
  9. Sascha Wolff, 2006. "Migration und ihre Determinanten im ost-westdeutschen Kontext nach der Wiedervereinigung: Ein Literaturüberblick," Departmental Discussion Papers 130, University of Goettingen, Department of Economics. [Downloadable!]
  10. Salvatore Barbaro, 2002. "The Distributional Impact of Subsidies to Higher Education - Empirical Evidence from Germany," Departmental Discussion Papers 114, University of Goettingen, Department of Economics. [Downloadable!]
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