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'Take it or Go to Court' - The Impact of Sec. 1a of the German Protection against Dismissal Act on Severance Payments -

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  • Laszlo Goerke
  • Markus Pannenberg

Abstract

In 2004, a section was added to the German Protection against Dismissal Act, establishing a new procedure to dismiss an employee, given a predetermined severance payment. Most legal scholars presume the change to be without impact, while a minority of experts claims it to be either beneficial or unfavourable to employees. Our theoretical model suggests that firms will use the new procedure, but that the change in payoffs is indeterminate and, therefore, an empirical issue. Exploiting the fact that collective dismissals are not directly affected by the amendment, difference-in-differences estimates based on panel data for West Germany indicate that the legal change did have a negative effect on severance pay.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3120.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3120

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Keywords: panel data; Protection against Dismissal Act; severance pay;

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References

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  1. Dlugosz, Stephan & Stephan, Gesine & Wilke, Ralf A., 2009. "Fixing the leak: unemployment incidence before and after the 2006 reform of unemployment benefits in Germany," ZEW Discussion Papers 09-079, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Goerke, Laszlo & Pannenberg, Markus, 2009. "The effects of income taxation on severance pay," Labour Economics, Elsevier, vol. 16(1), pages 107-118, January.
  3. Richard Blundell & Monica Costa Dias, 2002. "Alternative approaches to evaluation in empirical microeconomics," CeMMAP working papers CWP10/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  4. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
  5. repec:iza:izadps:dp875 is not listed on IDEAS
  6. Elke J. Jahn, 2009. "Do firms obey the law when they fire workers? Social criteria and severance payments in Germany," International Journal of Manpower, Emerald Group Publishing, vol. 30(7), pages 672-691, November.
  7. Christian Grund, 2006. "Severance payments for dismissed employees in Germany," European Journal of Law and Economics, Springer, vol. 22(1), pages 49-71, July.
  8. 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.
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