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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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  • Laszlo Goerke
  • Markus Pannenberg

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 unfavourable 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

  • Laszlo Goerke & Markus Pannenberg, 2010. "'Take it or Go to Court' - The Impact of Sec. 1a of the German Protection against Dismissal Act on Severance Payments -," CESifo Working Paper Series 3120, CESifo.
    • Handle: RePEc:ces:ceswps:_3120
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    References listed on IDEAS

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    1. Dlugosz, Stephan & Stephan, Gesine & Wilke, Ralf A., 2009. "Fixing the leak: Unemployment incidence before and after the 2006 reform of unemployment benefits in Germany," IAB-Discussion Paper 200925, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
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    5. 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.
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    More about this item

    Keywords

    panel data; Protection against Dismissal Act; severance pay;
    All these keywords.

    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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