Severance Payments as a Commitment Device
The present paper analyzes the role of severance payments in optimal labor contracts, employing an efficiency-wage model with two-sided moral hazard. We show how employers commit to job security for their workers by using severance payments, but that in general, employees are not fully compensated for the loss in income in the event of a layoff. By extending the analysis we establish a positive relation between investment in firm-specific training and the probability that a worker dismissed for behavioral reasons receives severance payments, and suggest that a mandatory increase in severance payments may yield a Pareto improvement.
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.
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.
Volume (Year): 166 (2010)
Issue (Month): 4 (December)
|Contact details of provider:|| Web page: https://www.mohr.de/jite|
|Order Information:|| Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany|
When requesting a correction, please mention this item's handle: RePEc:mhr:jinste:urn:sici:0932-4569(201012)166:4_715:spaacd_2.0.tx_2-h. 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: (Thomas Wolpert)
If references are entirely missing, you can add them using this form.