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Time to Say Goodbye: The Macroeconomic Implications of Termination Notice

Author

Listed:
  • Tomer Ifergane

    (London School of Economics (LSE)
    Centre for Macroeconomics (CFM)
    Ben-Gurion University of the Negev)

Abstract

In many countries, a sizeable portion of unemployment insurance is provided by employment protection policies, most commonly, termination notice. I show how termination notice alters wage bargaining outcomes and disincentivises job creation. I study the insurance role of termination notice in a general equilibrium heterogeneous agents model calibrated to moments of the Israeli labour market, which has both conventional unemployment insurance and termination notice. I demonstrate the complementarity between the two policies in the presence of moral hazard, which makes their joint design desirable. Finally, I find that termination notice is underutilised in the Israeli case.

Suggested Citation

  • Tomer Ifergane, 2022. "Time to Say Goodbye: The Macroeconomic Implications of Termination Notice," Discussion Papers 2212, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2212
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    References listed on IDEAS

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    More about this item

    Keywords

    Termination notice; Employment protection; Unemployment insurance; Incomplete markets; Search and matching; Heterogeneous agents; Optimal policy;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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