Employment effect of dismissal pay in the presence of judicial mistakes
AbstractExisting studies either overlook the importance of the juridical enforcement of employment protection legislation in determining the labor market consequences of dismissal payments or else neglect the possibly judicial biases caused by a tight labor market due to the assumption of exogenous judicial errors. By calling for endogenously determined judicial errors, this paper not only traces the effect of a firing litigation on employment, but also explores the possible effects of labor market conditions on judicial mistakes. We show that worse labor market conditions (a larger dismissal pay) will induce judges to be more favorable toward fired workers (firms). Thus, a higher level of unemployment (a larger dismissal pay) will decrease (increase) the possibility of a type-1 error and increase (decrease) the possibility of a type-2 error. It is also shown that, while a policy that lowers a type-1 error will increase the employment level, a lower type-2 error, somewhat surprisingly, will not necessarily have a positive effect on employment. Besides, in departing from the findings of previous analyses, we find that dismissal pay can either increase or decrease the employment level, with this crucially depending on the probability of juridical mistakes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Review of Law and Economics.
Volume (Year): 29 (2009)
Issue (Month): 1 (March)
Contact details of provider:
Web page: http://www.elsevier.com/locate/irle
Dismissal payments Employment protection Juridical mistake Unemployment;
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.:
- Sjostrom, William, 1993. "Job security in an efficiency wage model," Journal of Macroeconomics, Elsevier, vol. 15(1), pages 183-187.
- Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
- Snyder, Edward A, 1990. "The Effect of Higher Criminal Penalties on Antitrust Enforcement," Journal of Law and Economics, University of Chicago Press, vol. 33(2), pages 439-62, October.
- Burda, Michael C, 1992. " A Note on Firing Costs and Severance Benefits in Equilibrium Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(3), pages 479-89.
- Carter, Thomas J. & De Lancey, Paul R., 1997. "Just, Unjust, and Just-Cause Dismissals," Journal of Macroeconomics, Elsevier, vol. 19(3), pages 619-628, July.
- José Enrique Galdón Sánchez & Maia Güell, 2001.
"Dismissal conflicts and unemployment,"
Documentos de Trabajo - Lan Gaiak Departamento de EconomÃa - Universidad PÃºblica de Navarra
0105, Departamento de Economía - Universidad Pública de Navarra.
- Fella, Giulio, 2000. "Efficiency wage and efficient redundancy pay," European Economic Review, Elsevier, vol. 44(8), pages 1473-1490, August.
- Cahuc, Pierre & Zylberberg, André, 2000.
"Redundancy payments, incomplete labor contracts, unemployment and welfare,"
CEPREMAP Working Papers (Couverture Orange)
- Zylberberg, Andre & Cahuc, Pierre, 1999. "Redundancy Payments, Incomplete Labor Contracts, Unemployment and Welfare," IZA Discussion Papers 96, Institute for the Study of Labor (IZA).
- Bentolila, S. & Saint-Paul, G., 1992.
"A Model of Labour Demand with Linear Adjustment Costs,"
DELTA Working Papers
92-05, DELTA (Ecole normale supérieure).
- Bentolila, S. & Saint-Paul, G., 1995. "A model of labour demand with linear adjustment costs," Labour Economics, Elsevier, vol. 2(1), pages 105-105, March.
- Bentolila, Samuel & Saint-Paul, Gilles, 1994. "A model of labor demand with linear adjustment costs," Labour Economics, Elsevier, vol. 1(3-4), pages 303-326, September.
- Bentolila, Samuel & Saint-Paul, Gilles, 1992. "A Model of Labour Demand with Linear Adjustment Costs," CEPR Discussion Papers 690, C.E.P.R. Discussion Papers.
- Giuseppe Bertola, 1991.
"Labor Turnover Costs and Average Labor Demand,"
NBER Working Papers
3866, National Bureau of Economic Research, Inc.
- Goerke, Laszlo, 2002. "On dismissal pay," Labour Economics, Elsevier, vol. 9(4), pages 497-512, September.
- Andrea Ichino & Michele Polo & Enrico Rettore, .
"Are Judges Biased by Labor Market Conditions?,"
192, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
- Heijdra, Ben J. & Ligthart, Jenny E., 2002. "The hiring subsidy cum firing tax in a search model of unemployment," Economics Letters, Elsevier, vol. 75(1), pages 97-108, March.
- Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
- Amable, Bruno & Gatti, Donatella, 2002. "Macroeconomic effects of product market competition in a dynamic efficiency wage model," Economics Letters, Elsevier, vol. 75(1), pages 39-46, March.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Groenewold, Nicolaas, 1999. "Employment Protection and Aggregate Unemployment," Journal of Macroeconomics, Elsevier, vol. 21(3), pages 619-630, July.
- Goerke, Laszlo & Pannenberg, Markus, 2009.
"An economic analysis of dismissal legislation: Determinants of severance pay in West Germany,"
Center for European, Governance and Economic Development Research Discussion Papers
87, University of Goettingen, Department of Economics.
- Goerke, Laszlo & Pannenberg, Markus, 2010. "An economic analysis of dismissal legislation: Determinants of severance pay in West Germany," International Review of Law and Economics, Elsevier, vol. 30(1), pages 71-85, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.