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A Simple Model of Severance Pay Determination: The Case of Individual Dismissals in Spain

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  • Miguel Á. Malo

Abstract

In this article we model the determinants of severance pay for individual dismissals in Spain, following an idea proposed by Jimeno and Toharia (Economistas 55: 243-255, 1993). We point out the importance of severance pay settled before judgment, since the legal framework creates a bargaining space to determine the amount paid by firms in cases of individual dismissal. The model is a simple pre-trial bargaining game between the firm and the worker. It predicts a higher settled severance pay for dismissals on economic grounds than on disciplinary ones, which could explain the perceptions held about the wide use of disciplinary dismissals in Spain. In addition, this approach could be useful in designing labour market reforms aimed at changing dismissal costs, because it allows us to determine the key variables affecting settled severance pay. Our simple model predicts that the key variables for Spain are the severance pay for unfair dismissal and the probability of unfair dismissal. Copyright Fondazione Giacomo Brodolini and Blackwell Publishers Ltd 2000.

Suggested Citation

  • Miguel Á. Malo, 2000. "A Simple Model of Severance Pay Determination: The Case of Individual Dismissals in Spain," LABOUR, CEIS, vol. 14(2), pages 269-290, June.
  • Handle: RePEc:bla:labour:v:14:y:2000:i:2:p:269-290
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    Cited by:

    1. Boeri, Tito & Garibaldi, Pietro & Moen, Espen R., 2017. "Inside severance pay," Journal of Public Economics, Elsevier, vol. 145(C), pages 211-225.
    2. repec:got:cegedp:87 is not listed on IDEAS
    3. Boeri, Tito & Garibaldi, Pietro & Moen, Espen R., 2013. "The Economics of Severance Pay," IZA Discussion Papers 7455, Institute for the Study of Labor (IZA).
    4. Christian Grund, 2006. "Severance payments for dismissed employees in Germany," European Journal of Law and Economics, Springer, vol. 22(1), pages 49-71, July.
    5. Pilar García-Martínez & Miguel Malo, 2007. "The strategic use of dismissal legislation: an empirical analysis using Spanish data," European Journal of Law and Economics, Springer, vol. 23(2), pages 151-167, April.
    6. Juan J Dolado & Carlos Garcia--Serrano & Juan F. Jimeno, 2002. "Drawing Lessons From The Boom Of Temporary Jobs In Spain," Economic Journal, Royal Economic Society, vol. 112(721), pages 270-295, June.
    7. Frick, Bernd & Malo, Miguel A. & Garcia Martinez, Pilar & Schneider, Martin, 2012. "The Demand for Individual Grievance Procedures in Germany and Spain: Labour Law Changes versus Business Cycle/La demanda de reclamaciones laborales individuales en Alemania y España: Derecho Laboral v," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 30, pages 283-310, Abril.
    8. Goerke, Laszlo & Pannenberg, Markus, 2010. "An economic analysis of dismissal legislation: Determinants of severance pay in West Germany," International Review of Law and Economics, Elsevier, vol. 30(1), pages 71-85, March.
    9. Boeri, Tito & Garibaldi, Pietro & Moen, Espen R, 2014. "Severance Pay," CEPR Discussion Papers 10182, C.E.P.R. Discussion Papers.
    10. Bruno Deffains & Yannick Gabuthy & Eve-Angéline Lambert, 2007. "Labor Conflicts and Inefficiency of Relationship-Specific Investments: What is the Judge's Role?," Working Papers of BETA 2007-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    11. 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, vol. 15(1), pages 47-63, January.
    12. Laszlo Goerke & Markus Pannenberg, 2005. "Severance Pay and the Shadow of the Law: Evidence for West Germany," Discussion Papers of DIW Berlin 541, DIW Berlin, German Institute for Economic Research.
    13. Deffains, Bruno & Gabuthy, Yannick & Lambert, Eve-Angéline, 2010. "Labour disputes, investment decisions and the judiciary," Labour Economics, Elsevier, vol. 17(2), pages 424-433, April.
    14. García Serrano, Carlos & Malo, Miguel A., 2013. "Beyond the contract type segmentation in Spain : country case studies on labour market segmentation," ILO Working Papers 994814983402676, International Labour Organization.
    15. Miguel Angel Malo, "undated". "La regulaciÛn del despido disciplinario: Un an·lisis econÛmico," Studies on the Spanish Economy 150, FEDEA.
    16. E. Galdon-Sanchez, Jose & Guell, Maia, 2003. "Dismissal conflicts and unemployment," European Economic Review, Elsevier, vol. 47(2), pages 323-335, April.
    17. Malo, Miguel Ángel & Martín-Román, Ángel L. & Moral, Alfonso, 2016. "“Peer effects” or “quasi-peer effects” in Spanish labour court rulings," MPRA Paper 72669, University Library of Munich, Germany.
    18. Miguel Malo, 2001. "European Labour Law and Severance Pay Determination in Collective Redundancies," European Journal of Law and Economics, Springer, vol. 12(1), pages 73-90, July.
    19. Christian Grund, 2004. "Severance Payments for Dismissed Employees Severance Payments for Dismissed Employees in Germany," Bonn Econ Discussion Papers bgse4_2004, University of Bonn, Germany.
    20. Christian Grund, 2006. "Overcompensation by severance payments," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 925-930.
    21. Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011. "Severance pay programs around the world : history, rationale, status, and reforms," Social Protection and Labor Policy and Technical Notes 62726, The World Bank.
    22. Goerke, Laszlo & Pannenberg, Markus, 2009. "The effects of income taxation on severance pay," Labour Economics, Elsevier, vol. 16(1), pages 107-118, January.
    23. repec:ilo:ilowps:481498 is not listed on IDEAS

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