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Earnings-Related Severance Pay

  • Goerke, Laszlo

    ()

    (IAAEU, University of Trier)

In an efficiency wage economy, lump-sum severance pay from which shirkers can be excluded raises employment. However, severance payments are usually related to wages. It is shown that earnings-related, mandated severance pay will have ambiguous employment effects if effort can be varied continuously. A substitution of the earnings-related for the lump-sum component reduces employment. Thus, the prevalent form of severance payments in OECD countries might have less advantageous employment effects than previously conjectured.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2232.

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Length: 21 pages
Date of creation: Jul 2006
Date of revision:
Publication status: published in: Labour, 2006, 20 (4), 651-672
Handle: RePEc:iza:izadps:dp2232
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