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Redundancy Pay and Collective Dismissals

  • Laszlo Goerke

Redundancy payments for collective dismissals are incorporated into a Shapiro-Stiglitz model of efficiency wages. It is shown that a fixed payment will lower wages, leave employment and welfare unaffected if there are no wage-dependent taxes, no additional firing costs and if unemployment benefits are not altered by redundancy payments. If payroll taxes exceed firing costs and unemployment benefits are independent of redundancy pay, employment and welfare will rise with redundancy payments. If these payments are also a function of previous wages, positive employment effects will be mitigated. A substitution of wage-dependent for lump-sum redundancy payments can lower employment, allowing for a continuous variation of effort.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 582.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_582
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  1. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  2. Emerson, Michael, 1988. "Regulation or deregulation of the labour market : Policy regimes for the recruitment and dismissal of employees in the industrialised countries," European Economic Review, Elsevier, vol. 32(4), pages 775-817, April.
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  10. Chang, Juin-Jen & Lin, Chung-Cheng & Lai, Ching-Chong, 1999. "The Unemployment and Wage Effects of Shifting to an Indirect Tax in an Efficiency Wage Model," The Economic Record, The Economic Society of Australia, vol. 75(229), pages 156-66, June.
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  15. Cristina Pita, 1997. "Breach Penalties in Labour Contracts: Advance Notice and Severance Pay," LABOUR, CEIS, vol. 11(3), pages 469-495, November.
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  18. Fella, Giulio, 2000. "Efficiency wage and efficient redundancy pay," European Economic Review, Elsevier, vol. 44(8), pages 1473-1490, August.
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