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Mandatory severance pay : its coverage and effects in Peru

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  • MacIsaac, Donna
  • Rama, Martin

Abstract

In Peru, as in many other developing countries, employers have the legal obligation to compensate workers who are dismissed through no fault of their own. Is this an efficient mechanism for providing income support to the unemployed? The authors seek an answer to this question, using individual records from a household survey with a panel structure. Relying on five coverage indicators, they show that roughly one in five workers in the private sector, and one in three wage earners in the private sector, is legally entitled to severance pay. Coverage is more prevalent among wealthier workers. Results based on several empirical strategies suggest that workers"pay"for their entitlement to severance pay through lower wages. Consumption among unemployed workers who receive severance pay is 20 to 30 percent greater than among those who do not. Consumption among these workers is actually higher than consumption among employed workers, suggesting that mandatory severance pay is overgenerous in Peru.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2626.

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Date of creation: 30 Jun 2001
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Handle: RePEc:wbk:wbrwps:2626

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Related research

Keywords: Public Health Promotion; Labor Policies; Social Protections&Assistance; Wages; Compensation&Benefits; Environmental Economics&Policies; Wages; Compensation&Benefits; Environmental Economics&Policies; Health Monitoring&Evaluation; Social Protections&Assistance; Inequality;

References

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  1. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
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  12. Margaret E. Grosh & Paul Glewwe, 1998. "Data Watch: The World Bank's Living Standards Measurement Study Household Surveys," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 187-196, Winter.
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  15. Carmen Pagés-Serra & Gustavo Márquez, 1998. "Ties That Bind: Employment Protection and Labor Market Outcomes in Latin America," Research Department Publications 4118, Inter-American Development Bank, Research Department.
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Cited by:
  1. Rama, Martin, 2003. "Globalization and workers in developing countries," Policy Research Working Paper Series 2958, The World Bank.
  2. Brusentsev, Vera & Newhouse, David & Vroman, Wayne, 2012. "Severance pay compliance in Indonesia," Policy Research Working Paper Series 5933, The World Bank.
  3. Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011. "Severance Pay Programs around the World: History, Rationale, Status, and Reforms," IZA Discussion Papers 5731, Institute for the Study of Labor (IZA).
  4. Martin Rama, 2002. "Mondialisation, inégalités et politiques de l'emploi," Revue d’économie du développement, De Boeck Université, vol. 16(1), pages 43-83.

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