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Firing Costs, Severance Payments, Judicial Mistakes and Unemployment

  • Nikolai Stähler

    ()

    (Department of Economics, University of Mainz)

In the discussion about employment protection, little attention has been given to judicial mistakes. In most countries, only in the case of dismissals due to economic reasons, the employee is entitled to a severance payment. Given judicial mistakes when reviewing a dismissal, shirkers might falsely receive a severance payment while non-shirker might not. At fighting unemployment, increasing the level of severance payments can increase employment for small judicial mistakes and effectively dominate the pure firing costs which leave ambiguous effects on employment. For large judicial mistakes, the opposite can hold and severance payments can decrease employment.

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Paper provided by Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim in its series Working Papers of the Research Group Heterogenous Labor with number 06-07.

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Length: 21 pages
Date of creation: 14 Feb 2006
Date of revision:
Handle: RePEc:knz:hetero:0607
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