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Severance Payments for Dismissed Employees in Germany

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  • Grund, Christian

    () (RWTH Aachen University)

Abstract

This contribution investigates severance payments for dismissed employees in Germany. Subsequent to an overview about the legal framework, we respond to the following questions: Who receives severance payments? By which characteristics is the level of severance payments determined? Is overcompensation to be considered a relevant issue? Hereby, individual and collective dismissals are always distinguished. This is the first study on this issue using individual representative data – the German Socio-Economic Panel – and multivariate methods. The results indicate that rather women, persons with many years of tenure and working in big firms receive severance payments. There is a huge variance in the size of the payments, which can only partly be explained by tenure, the wage, firm size and the region. At least one quarter of dismissed employees is better off in their following careers independent of having received a severance payment.

Suggested Citation

  • Grund, Christian, 2003. "Severance Payments for Dismissed Employees in Germany," IZA Discussion Papers 875, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp875
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    Cited by:

    1. Moser, Christoph & Urban, Dieter & di Mauro, Beatrice Weder, 2010. "International competitiveness, job creation and job destruction--An establishment-level study of German job flows," Journal of International Economics, Elsevier, vol. 80(2), pages 302-317, March.
    2. 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.
    3. Goerke, Laszlo & Pannenberg, Markus, 2011. "Trade union membership and dismissals," Labour Economics, Elsevier, vol. 18(6), pages 810-821.
    4. Fackler, Daniel & Hank, Eva, 2016. "Who buffers income losses after job displacement? The role of alternative income sources, the family, and the state," IWH Discussion Papers 28/2016, Halle Institute for Economic Research (IWH).
    5. Daniel Fackler & Eva Hank, 2016. "Who Buffers Income Losses after Job Displacement? The Role of Alternative Income Sources, the Family, and the State," SOEPpapers on Multidisciplinary Panel Data Research 863, DIW Berlin, The German Socio-Economic Panel (SOEP).
    6. Christian Pfeifer, 2009. "Adjustment of Deferred Compensation Schemes, Fairness Concerns, and Hiring of Older Workers," Working Paper Series in Economics 151, University of Lüneburg, Institute of Economics.
    7. repec:bla:labour:v:31:y:2017:i:4:p:457-479 is not listed on IDEAS
    8. Merkl, Christian & Snower, Dennis J., 2008. "Escaping the unemployment trap: The case of East Germany," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 542-556, December.
    9. Grund, Christian & Schmitt, Andreas, 2013. "Works Councils, Quits and Dismissals in Germany," IZA Discussion Papers 7361, Institute for the Study of Labor (IZA).
    10. Pfeifer, Christian, 2009. "An Intra-Firm Perspective on Wage Profiles and Employment of Older Workers with Special Reference to Human Capital and Deferred Compensation," Hannover Economic Papers (HEP) dp-413, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    11. Goerke Laszlo & Pannenberg Markus, 2011. "'Take It or Go to Court': The Impact of Sec. 1a of the German Protection Against Dismissal Act on Severance Payments," Review of Law & Economics, De Gruyter, vol. 7(2), pages 377-404, December.
    12. Snower, Dennis J. & Merkl, Christian, 2006. "The Caring Hand that Cripples: The East German Labor Market After Reunification (Detailed Version)," IZA Discussion Papers 2066, Institute for the Study of Labor (IZA).
    13. Hank, Eva & Fackler, Daniel, 2017. "Who buffers income losses after job displacement? The role of alternative income sources, the family, and the state," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168098, Verein für Socialpolitik / German Economic Association.
    14. Stähler, Nikolai, 2008. "Firing costs, severance payments, judicial mistakes and unemployment," Labour Economics, Elsevier, vol. 15(6), pages 1162-1178, December.
    15. Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011. "Severance pay programs around the world : history, rationale, status, and reforms," Social Protection and Labor Policy and Technical Notes 62726, The World Bank.
    16. Zwick, Thomas, 2011. "Seniority wages and establishment characteristics," Labour Economics, Elsevier, vol. 18(6), pages 853-861.
    17. Berger, Helge & Neugart, Michael, 2011. "Labor courts, nomination bias, and unemployment in Germany," European Journal of Political Economy, Elsevier, vol. 27(4), pages 659-673.
    18. Laszlo Goerke & Markus Pannenberg, 2005. "Severance Pay and the Shadow of the Law: Evidence for West Germany," Discussion Papers of DIW Berlin 541, DIW Berlin, German Institute for Economic Research.
    19. Goerke, Laszlo & Pannenberg, Markus, 2009. "The effects of income taxation on severance pay," Labour Economics, Elsevier, vol. 16(1), pages 107-118, January.
    20. Grund, Christian & Martin, Johannes, 2017. "The Role of Works Councils for Severance Payments," IZA Discussion Papers 10750, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    plant closings; severance payments; dismissals;

    JEL classification:

    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence

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