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Earnings-Related Severance Pay

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Author Info
Laszlo Goerke () (University of Tübingen, CESifo and IZA Bonn)

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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 lumpsum component reduces employment. Thus, the prevalent form of severance payments in OECD countries might have less advantageous employment effects than previously conjectured.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2232.

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Length: 21 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2232

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Related research
Keywords: earnings relationship; efficiency wages; employment; severance pay;

Other versions of this item:

Find related papers by JEL classification:
J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

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References listed on IDEAS
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    Other versions:
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    Other versions:
  18. Michele Belot & Jan Boone & Jan van Ours, 2004. "Welfare Improving Employment Protection," DEGIT Conference Papers c009_004, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
    Other versions:
  19. Akerlof, George A & Yellen, Janet L, 1985. "A Near-rational Model of the Business Cycle, with Wage and Price Intertia," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 823-38, Supp.. [Downloadable!] (restricted)
  20. 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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