In the discussion about employment protection, little attention has been given to judicial mistakes. In most countries, only in the case of dismissals due to economic reasons, the employee is entitled to a severance payment. Given judicial mistakes when reviewing a dismissal, shirkers might falsely receive a severance payment while non-shirker might not. At fighting unemployment, increasing the level of severance payments can increase employment for small judicial mistakes and effectively dominate the pure firing costs which leave ambiguous effects on employment. For large judicial mistakes, the opposite can hold and severance payments can decrease employment.
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Find related papers by JEL classification: J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
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