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Earnings-related Severance Pay

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  • Laszlo Goerke

Abstract

In an efficiency wage economy, lump-sum severance pay from which shirkers can be excluded raises employment. However, severance payments are usually related to wages. It is shown that earnings-related, mandated severance pay will have ambiguous employment effects if effort can be varied continuously. A substitution of the earnings-related for the lump-sum component reduces employment. Thus, the prevalent form of severance payments in OECD countries might have less advantageous employment effects than previously conjectured. Copyright 2006 The Author; Journal compilation 2006 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd..

Suggested Citation

  • Laszlo Goerke, 2006. "Earnings-related Severance Pay," LABOUR, CEIS, vol. 20(4), pages 651-672, December.
  • Handle: RePEc:bla:labour:v:20:y:2006:i:4:p:651-672
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Parsons, Donald O., 2011. "Mandated Severance Pay and Firing Cost Distortions: A Critical Review of the Evidence," IZA Discussion Papers 5776, Institute for the Study of Labor (IZA).
    2. Makoto Masui, 2013. "Temporary Contracts, Employment Protection, and Collective Bargaining," LABOUR, CEIS, vol. 27(4), pages 371-398, December.
    3. Thomas COUDERT, 2015. "Inflation persistence and bargained firing costs," Working Papers of LaRGE Research Center 2015-04, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.

    More about this item

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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