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An Analysis of Dismissal Legislation: Determinants of Severance Pay in West Germany

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  • Laszlo Goerke
  • Markus Pannenberg

Abstract

Severance pay is a vital part of employment protection legislation (EPL). We investigate the incidence and level of severance pay for dismissed employees. Our theoretical model predicts that not only the law and its interpretation by labour courts but also the costs of a suit have an impact. Using West German panel data for 1991-2006, we find that the employees\' costs resulting from a suit and the legal determinants of such transfers affect the incidence of severance payments. In contrast, their level only varies with legal regulations. Our results imply that the strictness of EPL in Germany varies with extra-legal factors like employees\' financial constraints.

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Paper provided by cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany). in its series cege – Center for European, Governance and Economic Development Research Discussion Papers with number 87.

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Length: 42 pages
Date of creation: 17 Nov 2009
Date of revision: 17 Nov 2009
Handle: RePEc:got:cegedp:87

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Web page: http://www.cege.uni-goettingen.de
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Keywords: employment protection legislation; labour law; severance pay; survey data;

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  1. Willard G. Manning & Anirban Basu & John Mullahy, 2003. "Generalized Modeling Approaches to Risk Adjustment of Skewed Outcomes Data," NBER Technical Working Papers 0293, National Bureau of Economic Research, Inc.
  2. Besancenot, Damien & Vranceanu, Radu, 2007. "Multiple Equilibria in a Firing Game With Impartial Justice," ESSEC Working Papers DR 07025, ESSEC Research Center, ESSEC Business School.
  3. 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.
  4. Andrea Ichino & Michele Polo & Enrico Rettore, . "Are Judges Biased by Labor Market Conditions?," Working Papers 192, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Christine Jolls, 2004. "The Role and Functioning of Public-Interest Legal Organizations in the Enforcement of the Employment Laws," NBER Working Papers 10708, National Bureau of Economic Research, Inc.
  6. Grund, Christian, 2003. "Severance Payments for Dismissed Employees in Germany," IZA Discussion Papers 875, Institute for the Study of Labor (IZA).
  7. 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..
  8. Richard B. Freeman & Joni Hersch & Lawrence Mishel, 2004. "Emerging Labor Market Institutions for the Twenty-First Century," NBER Books, National Bureau of Economic Research, Inc, number free04-1.
  9. Christian Grund, 2006. "Overcompensation by severance payments," Applied Economics, Taylor and Francis Journals, vol. 38(8), pages 925-930.
  10. Goerke, Laszlo & Pannenberg, Markus, 2009. "The effects of income taxation on severance pay," Labour Economics, Elsevier, vol. 16(1), pages 107-118, January.
  11. Miguel Á. Malo, 2000. "A Simple Model of Severance Pay Determination: The Case of Individual Dismissals in Spain," LABOUR, CEIS, Fondazione Giacomo Brodolini, vol. 14(2), pages 269-290, 06.
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