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The Firing Cost Implications of Alternative Severance Pay Designs

  • Parsons, Donald O.

    ()

    (George Washington University)

Economists have concerns about the firing cost implications of mandated severance plans. Analysis reveals that predicted severance plan consequences depend critically on the precise structure of the plan. Whether governments mandate (i) severance insurance plans or (ii) severance savings plans is important; savings plans have no "firing cost" effects on employer layoff decisions. The firing cost implications of insurance plan are sensitive to the types of job separations that qualify a worker for benefits. Plans that pay benefits across all separations are functionally severance savings plans. The variety of plan types is illustrated using U.S. and international examples.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4967.

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Length: 26 pages
Date of creation: May 2010
Date of revision:
Publication status: published in: Robert Holzmann and Milan Vodopivec, eds., Reforming Severance Pay: An International Perspective, Washington, DC: World Bank, 2012, 159-176
Handle: RePEc:iza:izadps:dp4967
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  1. Bruce C. Fallick, 1995. "A review of the recent empirical literature on displaced workers," Finance and Economics Discussion Series 95-14, Board of Governors of the Federal Reserve System (U.S.).
  2. Bruce C. Fallick, 1996. "A Review of the Recent Empirical Literature on Displaced Workers," ILR Review, Cornell University, ILR School, vol. 50(1), pages 5-16, October.
  3. John T. Addison & Paulino Teixeira, 2003. "The Economics of Employment Protection," Journal of Labor Research, Transaction Publishers, vol. 24(1), pages 85-129, January.
  4. Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011. "Severance pay programs around the world : history, rationale, status, and reforms," Social Protection Discussion Papers 62726, The World Bank.
  5. Reinhard Koman & Ulrich Schuh & Andrea Weber, 2005. "The Austrian Severance Pay Reform: Toward a Funded Pension Pillar," Empirica, Springer, vol. 32(3), pages 255-274, 09.
  6. James J. Heckman & Carmen Pag├ęs, 2004. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Books, National Bureau of Economic Research, Inc, number heck04-1.
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