Earnings-Related Severance Pay
AbstractIn 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.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2232.
Length: 21 pages
Date of creation: Jul 2006
Date of revision:
Publication status: published in: Labour, 2006, 20 (4), 651-672
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Other versions of this item:
- 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
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