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An economic analysis of dismissal legislation: Determinants of severance pay in West Germany

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  • Goerke, Laszlo
  • Pannenberg, Markus

Abstract

Severance pay is a vital part of employment protection legislation (EPL). We investigate the incidence and level of severance pay for dismissed employees. Our theoretical model predicts that not only the law and its interpretation by labour courts but also the costs of a suit have an impact. Using West German panel data for 1991-2006, we find that the employees' costs resulting from a suit and the legal determinants of such transfers affect the incidence of severance payments. In contrast, their level only varies with legal regulations. Our results imply that the strictness of EPL in Germany varies with extra-legal factors like employees' financial constraints. --

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Bibliographic Info

Paper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 87.

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Date of creation: 2009
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Handle: RePEc:zbw:cegedp:87

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Keywords: employment protection legislation; labour law; severance pay; survey data;

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References

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  1. Thomas Bauer & Stefan Bender & Holger Bonin, 2004. "Dismissal Protection and Worker Flows in Small Establishments," RWI Discussion Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung 0014, Rheinisch-Westfälisches Institut für Wirtschaftsforschung.
  2. Malo, M.A aand Joaquin Pérez., 2002. "Individual dismissals in Europe and the United States: A model on the influence of the legal framework on firing costs," Doctorado en Economía- documentos de trabajo, Programa de doctorado en Economía. Universidad de Alcalá. 9/02, Programa de doctorado en Economía. Universidad de Alcalá..
  3. Goerke, Laszlo & Pannenberg, Markus, 2009. "The effects of income taxation on severance pay," Labour Economics, Elsevier, vol. 16(1), pages 107-118, January.
  4. Nikolai Stähler, 2006. "Firing Costs, Severance Payments, Judicial Mistakes and Unemployment," Working Papers of the Research Group Heterogenous Labor 06-07, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.
  5. Elke J. Jahn, 2009. "Do firms obey the law when they fire workers? Social criteria and severance payments in Germany," International Journal of Manpower, Emerald Group Publishing, Emerald Group Publishing, vol. 30(7), pages 672-691, November.
  6. Jones, Andrew M., 2000. "Health econometrics," Handbook of Health Economics, Elsevier, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 6, pages 265-344 Elsevier.
  7. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
  8. Christine Jolls, 2004. "The Role and Functioning of Public-Interest Legal Organizations in the Enforcement of the Employment Laws," NBER Working Papers 10708, National Bureau of Economic Research, Inc.
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  10. Jolls, Christine, 2007. "Employment Law," Handbook of Law and Economics, Elsevier, Elsevier.
  11. World Bank & International Finance Corporation, 2006. "Doing Business in 2006 : Creating Jobs," World Bank Publications, The World Bank, number 7421.
  12. Willard G. Manning & Anirban Basu & John Mullahy, 2003. "Generalized Modeling Approaches to Risk Adjustment of Skewed Outcomes Data," Working Papers 0313, Harris School of Public Policy Studies, University of Chicago.
  13. Damien Besancenot & Radu Vranceanu, 2008. "Multiple equilibria in a firing game with impartial justice," CEPN Working Papers halshs-00203176, HAL.
  14. Eger, Thomas, 2003. "Opportunistic termination of employment contracts and legal protection against dismissal in Germany and the USA," International Review of Law and Economics, Elsevier, vol. 23(4), pages 381-403, December.
  15. Andrea Ichino & Michele Polo & Enrico Rettore, . "Are Judges Biased by Labor Market Conditions?," Working Papers 192, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  16. José Enrique Galdón Sánchez & Maia Güell, 2001. "Dismissal conflicts and unemployment," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra, Departamento de Economía - Universidad Pública de Navarra 0105, Departamento de Economía - Universidad Pública de Navarra.
  17. Christine Jolls, 2007. "Employment Law and the Labor Market," NBER Working Papers 13230, National Bureau of Economic Research, Inc.
  18. Christian Grund, 2006. "Overcompensation by severance payments," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 38(8), pages 925-930.
  19. Christian Grund, 2006. "Severance payments for dismissed employees in Germany," European Journal of Law and Economics, Springer, vol. 22(1), pages 49-71, July.
  20. 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.
  21. Ioana Marinescu, 2011. "Are Judges Sensitive to Economic Conditions? Evidence from UK Employment Tribunals," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 64(4), pages 673-698, July.
  22. repec:hal:wpaper:halshs-00203176 is not listed on IDEAS
  23. Miguel �. Malo, 2000. "A Simple Model of Severance Pay Determination: The Case of Individual Dismissals in Spain," LABOUR, CEIS, CEIS, vol. 14(2), pages 269-290, 06.
  24. Christine Jolls, 2004. "The Role and Functioning of Public-Interest Legal Organizations in the Enforcement of the Employment Laws," NBER Chapters, in: Emerging Labor Market Institutions for the Twenty-First Century, pages 141-176 National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Goerke, Laszlo & Pannenberg, Markus, 2010. "Trade Union Membership and Dismissals," IZA Discussion Papers 5222, Institute for the Study of Labor (IZA).
  2. Laszlo Goerke & Markus Pannenberg, 2012. "Trade Union Membership and Sickness Absence: Evidence from a Sick Pay Reform," IAAEU Discussion Papers 201207, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  3. Uwe Jirjahn, 2013. "Der Beitrag der Arbeitsmarktökonomik zur Erforschung von Gewerkschaften und Tarifvertragsbeziehungen in Deutschland," Research Papers in Economics 2013-03, University of Trier, Department of Economics.
  4. Laszlo Goerke & Markus Pannenberg, 2010. "'Take it or Go to Court' - The Impact of Sec. 1a of the German Protection against Dismissal Act on Severance Payments -," CESifo Working Paper Series 3120, CESifo Group Munich.

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