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The Impact of Institutions on Firms’ Rejuvenation Policies: Early Retirement with Severance Pay versus Simple Lay-Off. A Cross-European Analysis

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Author Info

  • Justina A.V. Fischer

    ()
    (University of Hamburg, Institute for Public Finance)

  • Alfonso Sousa-Poza

    ()
    (Institut für Haushalts- und Konsumökonomik (Institute for Household and Consumer Economics), Fakultät Wirtschafts- und Sozialwissenschaften (Faculty of Business, Economics and Social Sciences), Universität Hohenheim)

Abstract

Early retirement of workers is used by firms as means to rejuvenate their workforces. In principle, workers can either simply be laid off or can be offered an early retirement option combined with a financial bonus. However, dismissing masses of older workers may be detrimental to social peace and stability and damage the firm’s reputation, while entry into early retirement with a severance pay at least maintains the semblance of a worker’s voluntary decision. Cross-national analyses of this topic using micro data are, however, widely missing. Using the SHARE (Survey of Health, Aging and Retirement in Europe) data set, this paper fills this gap by investigating to what extent institutional factors such as the generosity of the pension system and strong unions influence firms’ rejuvenation policies. Stronger unions appear to lead to a higher likelihood of receiving a severance pay, as does a more generous pension system. In contrast, a higher decrease in wealth accrual leads to a higher probability of simple lay-off. It is concluded that the current reforms which aim at lowering the replacement rate and employment protection will most probably lead to more dismissals of older workers without severance pay.

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File URL: http://www.hced.uni-hamburg.de/WorkingPapers/HCED-034.pdf
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Bibliographic Info

Paper provided by Chair for Economic Policy, University of Hamburg in its series Working Papers with number 034.

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Length: 34 pages
Date of creation: 28 Feb 2010
Date of revision:
Publication status: Published in Hamburg Contemporary Economic Discussions, Issue 34, 2010
Handle: RePEc:hce:wpaper:034

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Keywords: Early Retirement; Involuntary Early Retirement; Severance Pay; Social Security; Pensions; Employment Protection; Unions;

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References

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Cited by:
  1. Justina A.V. Fischer & Alfonso Sousa-Poza, 2010. "The Impact of Institutions on Firms’ Rejuvenation Policies: Early Retirement with Severance Pay versus Simple Lay-Off. A Cross-European Analysis," Working Papers 034, Chair for Economic Policy, University of Hamburg.

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