IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

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

  • Goerke, Laszlo
  • Pannenberg, Markus

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 30 (2010)
Issue (Month): 1 (March)
Pages: 71-85

in new window

Handle: RePEc:eee:irlaec:v:30:y:2010:i:1:p:71-85
Contact details of provider: Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. 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).
  2. 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.
  3. 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.
  4. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003. "Are judges biased by labor market conditions?," European Economic Review, Elsevier, vol. 47(5), pages 913-944, October.
  5. 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.
  6. 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, vol. 30(7), pages 672-691, November.
  7. repec:iab:iabzaf:v:38:i:2/3:p:284-304 is not listed on IDEAS
  8. Besancenot, Damien & Vranceanu, Radu, 2007. "Multiple Equilibria in a Firing Game With Impartial Justice," ESSEC Working Papers DR 07025, ESSEC Research Center, ESSEC Business School.
  9. World Bank & International Finance Corporation, 2006. "Doing Business in 2006 : Creating Jobs," World Bank Publications, The World Bank, number 7421.
  10. Christine Jolls, 2007. "Employment Law and the Labor Market," NBER Working Papers 13230, National Bureau of Economic Research, Inc.
  11. Miguel �. Malo, 2000. "A Simple Model of Severance Pay Determination: The Case of Individual Dismissals in Spain," LABOUR, CEIS, vol. 14(2), pages 269-290, 06.
  12. Willard G. Manning & Anirban Basu & John Mullahy, 2003. "Generalized Modeling Approaches to Risk Adjustment of Skewed Outcomes Data," NBER Technical Working Papers 0293, National Bureau of Economic Research, Inc.
  13. Thomas K. Bauer & Stefan Bender & Holger Bonin, 2007. "Dismissal Protection and Worker Flows in Small Establishments," Economica, London School of Economics and Political Science, vol. 74(296), pages 804-821, November.
  14. 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.
  15. 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.
  16. Christian Grund, 2006. "Overcompensation by severance payments," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 925-930.
  17. 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.
  18. Stähler, Nikolai, 2008. "Firing costs, severance payments, judicial mistakes and unemployment," Labour Economics, Elsevier, vol. 15(6), pages 1162-1178, December.
  19. repec:hal:wpaper:halshs-00203176 is not listed on IDEAS
  20. Goerke, Laszlo & Pannenberg, Markus, 2009. "The effects of income taxation on severance pay," Labour Economics, Elsevier, vol. 16(1), pages 107-118, January.
  21. José Enrique Galdón Sánchez & Maia Güell, 2001. "Dismissal conflicts and unemployment," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0105, Departamento de Economía - Universidad Pública de Navarra.
  22. Christian Grund, 2006. "Severance payments for dismissed employees in Germany," European Journal of Law and Economics, Springer, vol. 22(1), pages 49-71, July.
  23. Andrew M. Jones, 2012. "health econometrics," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
  24. Jolls, Christine, 2007. "Employment Law," Handbook of Law and Economics, Elsevier.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:irlaec:v:30:y:2010:i:1:p:71-85. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.