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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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Postal: Platz der Göttinger Sieben 3, 37073 Göttingen
Web page: http://www.cege.wiso.uni-goettingen.de/
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Keywords: employment protection legislation; labour law; severance pay; survey data;

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References

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  1. repec:hal:wpaper:halshs-00203176 is not listed on IDEAS
  2. Thomas K. Bauer & Stefan Bender & Holger Bonin, 2007. "Dismissal Protection and Worker Flows in Small Establishments," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 74(296), pages 804-821, November.
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  9. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003. "Are judges biased by labor market conditions?," European Economic Review, Elsevier, Elsevier, vol. 47(5), pages 913-944, October.
  10. 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.
  11. Nikolai Stähler, 2006. "Firing Costs, Severance Payments, Judicial Mistakes and Unemployment," Working Papers of the Research Group Heterogenous Labor, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim 06-07, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.
  12. World Bank & International Finance Corporation, 2006. "Doing Business in 2006 : Creating Jobs," World Bank Publications, The World Bank, number 7421, August.
  13. 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, Elsevier, vol. 23(4), pages 381-403, December.
  14. E. Galdon-Sanchez, Jose & Guell, Maia, 2003. "Dismissal conflicts and unemployment," European Economic Review, Elsevier, Elsevier, vol. 47(2), pages 323-335, April.
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  16. Miguel Malo & Joaquín Pérez, 2003. "Individual Dismissals in Europe and the United States: A Model on the Influence of the Legal Framework on Firing Costs," European Journal of Law and Economics, Springer, Springer, vol. 15(1), pages 47-63, January.
  17. 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.
  18. 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.
  19. 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.
  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, Elsevier, vol. 29(1), pages 38-45, March.
  21. 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).
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Cited by:
  1. 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.
  2. Goerke, Laszlo & Pannenberg, Markus, 2010. "Trade Union Membership and Dismissals," IZA Discussion Papers 5222, Institute for the Study of Labor (IZA).
  3. Goerke, Laszlo & Pannenberg, Markus, 2012. "Trade Union Membership and Sickness Absence: Evidence from a Sick Pay Reform," IZA Discussion Papers 6777, Institute for the Study of Labor (IZA).
  4. 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.

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