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'Take It or Go to Court': The Impact of Sec. 1a of the German Protection Against Dismissal Act on Severance Payments

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  • Goerke Laszlo

    (IAAEG, Universität Trier; IZA, Bonn; and CESifo, München University of Applied Sciences Bielefeld; DIW Berlin; and IZA, Bonn)

  • Pannenberg Markus

    (IAAEG, Universität Trier; IZA, Bonn; and CESifo, München University of Applied Sciences Bielefeld; DIW Berlin; and IZA, Bonn)

Abstract

In 2004, a section was added to the German Protection against Dismissal Act, establishing a new procedure to dismiss an employee, given a predetermined severance payment. Most legal scholars presume the change to be without impact, while a minority of experts claims it to be either beneficial or unfavorable to employees. Our theoretical model suggests that firms will use the new procedure, but that the change in payoffs is indeterminate and, therefore, an empirical issue. Exploiting the fact that collective dismissals are not directly affected by the amendment, difference-in-differences estimates based on panel data for West Germany indicate that the legal change did have a negative effect on severance pay.

Suggested Citation

  • Goerke Laszlo & Pannenberg Markus, 2011. "'Take It or Go to Court': The Impact of Sec. 1a of the German Protection Against Dismissal Act on Severance Payments," Review of Law & Economics, De Gruyter, vol. 7(2), pages 377-404, December.
    • Handle: RePEc:bpj:rlecon:v:7:y:2011:i:2:n:3
    DOI: 10.2202/1555-5879.1519
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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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