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Redundancy Pay and Collective Dismissals

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  • Laszlo Goerke

Abstract

Redundancy payments for collective dismissals are incorporated into a Shapiro-Stiglitz model of efficiency wages. It is shown that a fixed payment will lower wages, leave employment and welfare unaffected if there are no wage-dependent taxes, no additional firing costs and if unemployment benefits are not altered by redundancy payments. If payroll taxes exceed firing costs and unemployment benefits are independent of redundancy pay, employment and welfare will rise with redundancy payments. If these payments are also a function of previous wages, positive employment effects will be mitigated. A substitution of wage-dependent for lump-sum redundancy payments can lower employment, allowing for a continuous variation of effort.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2001/wp-cesifo-2001-10/cesifo_wp582.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 582.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_582

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Keywords: collective dismissal; efficiency wages; employment; redundancy pay; welfare;

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  1. Goerke, Laszlo, 2000. "On the structure of unemployment benefits in shirking models," Labour Economics, Elsevier, vol. 7(3), pages 283-295, May.
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  14. Chang, Juin-Jen & Lin, Chung-Cheng & Lai, Ching-Chong, 1999. "The Unemployment and Wage Effects of Shifting to an Indirect Tax in an Efficiency Wage Model," The Economic Record, The Economic Society of Australia, vol. 75(229), pages 156-66, June.
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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. 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.
  3. repec:iza:izadps:dp875 is not listed on IDEAS

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