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

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Author Info
Malo, M.A aand Joaquin Pérez. () (Universidad de Salamanca (Spain))

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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.

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Publisher Info
Paper provided by Programa de doctorado en Economía. Universidad de Alcalá. in its series Doctorado en Economía- documentos de trabajo with number 9/02.

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Length: pages 30
Date of creation: 01 Jun 2002
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Handle: RePEc:alc:alcddt:9/02

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Related research
Keywords: dismissal; individual dismissal; severance pay; firing costs; Labour Law;

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Find related papers by JEL classification:
K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions

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. Paul Oyer & Scott Schaefer, 2000. "Layoffs and Litigation," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 345-358, Summer.
    Other versions:
  2. 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)
  3. 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. [Downloadable!] (restricted)
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  4. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June. [Downloadable!] (restricted)
  5. Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 93-108, January. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  7. Landes, William M, 1971. "An Economic Analysis of the Courts," Journal of Law & Economics, University of Chicago Press, vol. 14(1), pages 61-107, April.
  8. Simon Deakin & Frank Wilkinson, 1999. "The Management of Redundancies in Europe: The Case of Great Britain," LABOUR, CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd, vol. 13(1), pages 41-89, 03. [Downloadable!] (restricted)
  9. Miguel Á. Malo, 2000. "A Simple Model of Severance Pay Determination: The Case of Individual Dismissals in Spain," LABOUR, CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd, vol. 14(2), pages 269-290, 06. [Downloadable!] (restricted)
  10. 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)
  11. Alan B. Krueger, 1991. "The evolution of unjust-dismissal legislation in the United States," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 44(4), pages 644-660, July.
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  12. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538. [Downloadable!] (restricted)
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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. 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)
  2. 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!]
  3. 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)
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