IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp2232.html
   My bibliography  Save this paper

Earnings-Related Severance Pay

Author

Listed:
  • Goerke, Laszlo

    (IAAEU, University of Trier)

Abstract

In an efficiency wage economy, lump-sum severance pay from which shirkers can be excluded raises employment. However, severance payments are usually related to wages. It is shown that earnings-related, mandated severance pay will have ambiguous employment effects if effort can be varied continuously. A substitution of the earnings-related for the lump-sum component reduces employment. Thus, the prevalent form of severance payments in OECD countries might have less advantageous employment effects than previously conjectured.

Suggested Citation

  • Goerke, Laszlo, 2006. "Earnings-Related Severance Pay," IZA Discussion Papers 2232, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp2232
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp2232.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pisauro, Giuseppe, 1991. "The effect of taxes on labour in efficiency wage models," Journal of Public Economics, Elsevier, vol. 46(3), pages 329-345, December.
    2. Giuseppe Pisauro, 2000. "Efficiency Wage, Fixed Employment Costs, and Dual Labour Markets," LABOUR, CEIS, vol. 14(2), pages 213-244, June.
    3. Sanfey, Peter J, 1995. "Insiders and Outsiders in Union," Journal of Economic Surveys, Wiley Blackwell, vol. 9(3), pages 255-284.
    4. Burda, Michael C, 1992. " A Note on Firing Costs and Severance Benefits in Equilibrium Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(3), pages 479-489.
    5. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 699-726.
    6. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 381-402.
    7. E. Galdon-Sanchez, Jose & Guell, Maia, 2003. "Dismissal conflicts and unemployment," European Economic Review, Elsevier, vol. 47(2), pages 323-335, April.
    8. Michèle Belot & Jan Boone & Jan Van Ours, 2007. "Welfare‐Improving Employment Protection," Economica, London School of Economics and Political Science, vol. 74(295), pages 381-396, August.
    9. Carter, Thomas J., 1998. "Minimum wage laws: what does an employment increase imply about output and welfare?," Journal of Economic Behavior & Organization, Elsevier, vol. 36(4), pages 473-485, September.
    10. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
    11. Michael Hoel, 1990. "Efficiency wages and income taxes," Journal of Economics, Springer, vol. 51(1), pages 89-99, February.
    12. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    13. repec:adr:anecst:y:1995:i:37-38:p:04 is not listed on IDEAS
    14. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
    15. Assar Lindbeck & Dennis J. Snower, 2001. "Insiders versus Outsiders," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 165-188, Winter.
    16. Chatrerji, Monojit & Sparks, Roger, 1991. "Real wages, productivity, and the cycle: An efficiency wage model," Journal of Macroeconomics, Elsevier, vol. 13(3), pages 495-510.
    17. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    18. Pietro Garibaldi & Giovanni L. Violante, 2005. "The Employment Effects of Severance Payments with Wage Rigidities," Economic Journal, Royal Economic Society, vol. 115(506), pages 799-832, October.
    19. Gilles Saint-Paul, 1995. "Efficiency Wage, Commitment and Hysteresis," Annals of Economics and Statistics, GENES, issue 37-38, pages 39-53.
    20. Bertola, Giuseppe, 1999. "Microeconomic perspectives on aggregate labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 45, pages 2985-3028, Elsevier.
    21. George A. Akerlof & Janet L. Yellen, 1985. "A Near-Rational Model of the Business Cycle, with Wage and Price Inertia," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(Supplemen), pages 823-838.
    22. Goerke, Laszlo, 1997. "Taxes in an efficiency wage economy," Discussion Papers, Series II 335, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    23. Juin‐Jen Chang & Chung‐Cheng Lin & Ching‐Chong Lai, 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(2), pages 156-166, June.
    24. Goerke, Laszlo, 2002. "On dismissal pay," Labour Economics, Elsevier, vol. 9(4), pages 497-512, September.
    25. repec:adr:anecst:y:1995:i:37-38:p:03 is not listed on IDEAS
    26. Fella, Giulio, 2000. "Efficiency wage and efficient redundancy pay," European Economic Review, Elsevier, vol. 44(8), pages 1473-1490, August.
    27. 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 156-166, June.
    28. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Parsons, Donald O., 2011. "Mandated Severance Pay and Firing Cost Distortions: A Critical Review of the Evidence," IZA Discussion Papers 5776, Institute of Labor Economics (IZA).
    2. Makoto Masui, 2013. "Temporary Contracts, Employment Protection, and Collective Bargaining," LABOUR, CEIS, vol. 27(4), pages 371-398, December.
    3. Thomas COUDERT, 2015. "Inflation persistence and bargained firing costs," Working Papers of LaRGE Research Center 2015-04, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    4. Thomas COUDERT, 2016. "A new insight on the inflation persistence: the role of severance pay," Working Papers of LaRGE Research Center 2016-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Laszlo Goerke, 2002. "Redundancy Pay and Collective Dismissals," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(1), pages 68-90, February.
    2. Fella Giulio, 2012. "Matching, Wage Rigidities and Efficient Severance Pay," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-35, December.
    3. Boeri, Tito & Garibaldi, Pietro & Moen, Espen R., 2017. "Inside severance pay," Journal of Public Economics, Elsevier, vol. 145(C), pages 211-225.
    4. Stähler, Nikolai, 2008. "Firing costs, severance payments, judicial mistakes and unemployment," Labour Economics, Elsevier, vol. 15(6), pages 1162-1178, December.
    5. repec:hal:spmain:info:hdl:2441/7hh2up94ii8d2rg9pa9vg9eh3t is not listed on IDEAS
    6. 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.
    7. Fella Giulio, 2012. "Matching, Wage Rigidities and Efficient Severance Pay," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-35, December.
    8. Goerke, Laszlo, 2002. "On dismissal pay," Labour Economics, Elsevier, vol. 9(4), pages 497-512, September.
    9. Romain Duval & Prakash Loungani, 2021. "Designing Labor Market Institutions in Emerging Market and Developing Economies: A Review of Evidence and IMF Policy Advice," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(1), pages 31-83, March.
    10. Eguchi, Kyota, 2014. "Employment protection and incentives: Severance pay vs. procedural inconvenience," Journal of the Japanese and International Economies, Elsevier, vol. 34(C), pages 272-290.
    11. Goerke, Laszlo & Neugart, Michael, 2015. "Lobbying and dismissal dispute resolution systems," International Review of Law and Economics, Elsevier, vol. 41(C), pages 50-62.
    12. Groenewold, Nicolaas, 1999. "Employment Protection and Aggregate Unemployment," Journal of Macroeconomics, Elsevier, vol. 21(3), pages 619-630, July.
    13. van der Wiel, Karen, 2010. "Better protected, better paid: Evidence on how employment protection affects wages," Labour Economics, Elsevier, vol. 17(1), pages 16-26, January.
    14. Giuseppina Gianfreda & Giovanna Vallanti, 2020. "Labor Courts and Firing Costs: The Labor‐Market Effects of Trial Delays," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 59(1), pages 40-84, January.
    15. Andrea Vindigni & Simone Scotti & Cristina Tealdi, 2015. "Uncertainty and the Politics of Employment Protection," Journal of Labor Economics, University of Chicago Press, vol. 33(1), pages 209-267.
    16. Julia Fath & Clemens Fuest, 2005. "Experience Rating versus Employment Protection Laws in a Model where Firms Monitor Workers," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 299-314, June.
    17. Cozzi, Marco & Fella, Giulio, 2016. "Job displacement risk and severance pay," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 166-181.
    18. Eguchi Kyota, 2008. "Damages or Reinstatement: Incentives and Remedies for Unjust Dismissal," Review of Law & Economics, De Gruyter, vol. 4(1), pages 443-474, December.
    19. Bjuggren, Carl Magnus, 2013. "The Effect of Employment Protection Rules on Firm Productivity - A Natural Experiment," HUI Working Papers 82, HUI Research, revised 30 Oct 2013.
    20. Tito Boeri & Michael C. Burda, 2009. "Preferences for Collective Versus Individualised Wage Setting," Economic Journal, Royal Economic Society, vol. 119(540), pages 1440-1463, October.
    21. Charlot, Olivier & Malherbet, Franck, 2013. "Education and employment protection," Labour Economics, Elsevier, vol. 20(C), pages 3-23.

    More about this item

    Keywords

    earnings relationship; efficiency wages; employment; severance pay;
    All these keywords.

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp2232. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.