IDEAS home Printed from https://ideas.repec.org/p/alc/alcddt/9-02.html
   My bibliography  Save this paper

Individual dismissals in Europe and the United States: A model on the influence of the legal framework on firing costs

Author

Abstract

In this article, we present a model of individual dismissals based on the workers' right to file a suit against their employer arguing that the dismissal is unjustified or unfair. The model is a standard pre-trial bargaining game between a firm and a worker. We study two cases: when the law states the severance pay for unfair dismissal (the European case), and when judges can decide freely on the compensation to be paid to the worker (the American case). The model provides some guidelines for Labour Law reforms. In the European case, a decrease in the severance pay for unfair dismissals fixed by law will decrease the severance pay offered by the firm, and only under some assumptions will decrease the expected firing cost and will increase the settlement probability. In addition, the transition from the European to the American case is likely to increase the probability of settlement (and to decrease it in the opposite case) with ambiguous effects on agreed severance pay and expected firing costs.

Suggested Citation

  • 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..
    • Handle: RePEc:alc:alcddt:9/02
    as

    Download full text from publisher

    File URL: http://www2.uah.es/docecon/documentos/DT9.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
    2. 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.
    3. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 381-402.
    4. William M. Landes, 1974. "An Economic Analysis of the Courts," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 164-214, National Bureau of Economic Research, Inc.
    5. Karen Mumford, 1996. "Arbitration and ACAS in Britain: a Historical Perspective," British Journal of Industrial Relations, London School of Economics, vol. 34(2), pages 287-305, June.
    6. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
    7. Paul Oyer & Scott Schaefer, 2000. "Layoffs and Litigation," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 345-358, Summer.
    8. Simon Deakin & Frank Wilkinson, 1999. "The Management of Redundancies in Europe: The Case of Great Britain," LABOUR, CEIS, vol. 13(1), pages 41-89, March.
    9. 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.
    10. Miguel Á. Malo, 2000. "A Simple Model of Severance Pay Determination: The Case of Individual Dismissals in Spain," LABOUR, CEIS, vol. 14(2), pages 269-290, June.
    11. Emerson, Michael, 1988. "Regulation or deregulation of the labour market : Policy regimes for the recruitment and dismissal of employees in the industrialised countries," European Economic Review, Elsevier, vol. 32(4), pages 775-817, April.
    12. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538-538.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Christian Grund, 2006. "Severance payments for dismissed employees in Germany," European Journal of Law and Economics, Springer, vol. 22(1), pages 49-71, July.
    2. 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.
    3. Frick, Bernd & Malo, Miguel A. & Garcia Martinez, Pilar & Schneider, Martin, 2012. "The Demand for Individual Grievance Procedures in Germany and Spain: Labour Law Changes versus Business Cycle/La demanda de reclamaciones laborales individuales en Alemania y España: Derecho Laboral v," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 30, pages 283-310, Abril.
    4. Camille Signoretto, 2016. "Mutually agreed termination, job destruction and dismissals: An empirical analysis based on French firm data (2006-2009)," Post-Print hal-01446429, HAL.
    5. 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.
    6. Miguel Á. Malo & Ángel Martín-Román & Alfonso Moral, 2018. "“Peer effects” or “quasi-peer effects” in Spanish labour court rulings," European Journal of Law and Economics, Springer, vol. 45(3), pages 497-525, June.
    7. repec:got:cegedp:87 is not listed on IDEAS
    8. Camille Signoretto & Julie Valentin, 2019. "Individual dismissals for personal and economic reasons in French firms: One or two models?," European Journal of Law and Economics, Springer, vol. 48(2), pages 241-265, October.
    9. Goerke, Laszlo & Pannenberg, Markus, 2009. "The effects of income taxation on severance pay," Labour Economics, Elsevier, vol. 16(1), pages 107-118, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. E. Galdon-Sanchez, Jose & Guell, Maia, 2003. "Dismissal conflicts and unemployment," European Economic Review, Elsevier, vol. 47(2), pages 323-335, April.
    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.
    3. Benoît Pierre FREYENS, 2010. "Measuring firing costs: The case for direct methods," International Labour Review, International Labour Organization, vol. 149(3), pages 287-313, September.
    4. Garibaldi, Pietro, 1998. "Job flow dynamics and firing restrictions," European Economic Review, Elsevier, vol. 42(2), pages 245-275, February.
    5. Martínez Matute, Marta & Perez Dominguez, Carlos, 2012. "El impacto de los costes de despido sobre el empleo en España: Una estimación con datos de panel/Impact Of Firing Costs On The Spanish Employment: A Panel Data Estimation," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 30, pages 137-162, Abril.
    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.
    7. repec:eee:labchp:v:3:y:1999:i:pb:p:2291-2372 is not listed on IDEAS
    8. Kanniainen, Vesa & Vesala, Timo, 2005. "Entrepreneurship and labor market institutions," Economic Modelling, Elsevier, vol. 22(5), pages 828-847, September.
    9. Jung, Sven, 2013. "Employment Adjustment in German Firms," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79696, Verein für Socialpolitik / German Economic Association.
    10. Sven Jung, 2014. "Employment adjustment in German firms [Betriebliche Beschäftigungsanpassung in Deutschland]," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 47(1), pages 83-106, March.
    11. Camille Signoretto, 2016. "Mutually agreed termination, job destruction and dismissals: An empirical analysis based on French firm data (2006-2009)," Post-Print hal-01446429, HAL.
    12. Claudio Montenegro & Carmen Pagés-Serra, 2003. "¿Quién se beneficia con la normativa de los mercados laborales?: Chile, 1960-1998," Research Department Publications 4346, Inter-American Development Bank, Research Department.
    13. Lars Ljungqvist, 2002. "How Do Lay--off Costs Affect Employment?," Economic Journal, Royal Economic Society, vol. 112(482), pages 829-853, October.
    14. Carmen Pagés-Serra, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2000), pages 109-154, August.
    15. Achyuta Adhvaryu & A. V. Chari & Siddharth Sharma, 2013. "Firing Costs and Flexibility: Evidence from Firms' Employment Responses to Shocks in India," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 725-740, July.
    16. Brown, Alessio J. G. & Snower, Dennis J., 2009. "Incentives and complementarities of flexicurity," Kiel Working Papers 1526, Kiel Institute for the World Economy (IfW Kiel).
    17. Kirchner, Armin H., 2004. "Verringerung von Arbeitslosigkeit durch Lockerung des Kündigungsschutzes : Die entscheidende Einflussgröße," Tübinger Diskussionsbeiträge 277, University of Tübingen, School of Business and Economics.
    18. Claudio Montenegro & Carmen Pagés, 2005. "Who Benefits from Labor Market Regulations? Chile 1960-1998," Central Banking, Analysis, and Economic Policies Book Series, in: Jorge Restrepo & Andrea Tokman R. & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edi (ed.),Labor Markets and Institutions, edition 1, volume 8, chapter 4, pages 077-114, Central Bank of Chile.
    19. van der Wiel, Karen, 2010. "Better protected, better paid: Evidence on how employment protection affects wages," Labour Economics, Elsevier, vol. 17(1), pages 16-26, January.
    20. Camille Signoretto, 2013. "Rupture conventionnelle, destructions d'emplois et licenciements : une analyse empirique sur données d'entreprises (2006-2009)," Documents de travail du Centre d'Economie de la Sorbonne 13069, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    21. Huang, Chun-chieh & Chang, Juin-jen & Lai, Ching-chong, 2009. "Employment effect of dismissal pay in the presence of judicial mistakes," International Review of Law and Economics, Elsevier, vol. 29(1), pages 38-45, March.

    More about this item

    Keywords

    dismissal; individual dismissal; severance pay; firing costs; Labour Law;
    All these keywords.

    JEL classification:

    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:alc:alcddt:9/02. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Juan Muro (email available below). General contact details of provider: https://edirc.repec.org/data/fcalces.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.