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Severance Pay Rules And Structural Layoff Decisions

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  • Oliver Fabel

Abstract

The paper develops a formal model of the optimal age-tenure structure in layoff decisions. Based on a linear Bayesian learning process a severance pay rule, which is derived from voluntary participation and separation conditions for individual workers, determines the dismissal costs. An optimal selection policy generally equalizes the expected profit contributions over the marginal workers retained in each age-group. Given plausible assumptions, the selection criteria and layoff rates for older workers decrease. However, the effect of tenure on selection and layoff rates remains ambiguous.

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Bibliographic Info

Article provided by LMU Munich School of Management in its journal Schmalenbach Business Review.

Volume (Year): 54 (2002)
Issue (Month): 2 (April)
Pages: 118-135

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Handle: RePEc:sbr:abstra:v:54:y:2002:i:2:p:118-135

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Cited by:
  1. Christian Grund, 2006. "Overcompensation by severance payments," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 925-930.
  2. repec:iza:izadps:dp875 is not listed on IDEAS
  3. 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.
  4. Oliver Fabel & Martin Kolmar, 2007. "On 'Golden Parachutes' as Manager Discipline," TWI Research Paper Series 17, Thurgauer Wirtschaftsinstitut, Universit├Ąt Konstanz.
  5. Christian Grund, 2006. "Severance payments for dismissed employees in Germany," European Journal of Law and Economics, Springer, vol. 22(1), pages 49-71, July.

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