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Firing Tax vs. Severance Payment - An Unequal Comparison

  • Wesselbaum, Dennis

The effects of firing costs crucially depend on the extend to which the additional costs can be shifted to the worker, which refers to the so called "bonding critique". In the recent literature about firing costs, these costs are assumed to be a wasteful tax, such that they can not be shifted to the worker. In this paper, we analyze the eects from respecting and non-respecting the bonding critique. We consistently show, that firing costs have to be introduced in a different way as severance payments. If they are introduced in a similar way, results are likely to be different, in particular for fluctuations of vacancies, unemployment and wages.

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File URL: https://mpra.ub.uni-muenchen.de/17637/3/MPRA_paper_17637.pdf
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File URL: https://mpra.ub.uni-muenchen.de/24453/2/MPRA_paper_24453.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17637.

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Date of creation: 02 Oct 2009
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Handle: RePEc:pra:mprapa:17637
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  1. bertola, G. & Rogerson, R., 1996. "Institutions and Labor Reallocation," Papers 272, Banca Italia - Servizio di Studi.
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  8. Kugler, Adriana & Saint-Paul, Gilles, 2000. "Hiring and Firing Costs, Adverse Selection and Long-term Unemployment," IZA Discussion Papers 134, Institute for the Study of Labor (IZA).
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  14. Brown, Alessio J. G. & Merkl, Christian & Snower, Dennis J., 2010. "An Incentive Theory of Matching," Open Access Publications from Kiel Institute for the World Economy 37391, Kiel Institute for the World Economy (IfW).
  15. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
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  20. repec:oup:restud:v:49:y:1982:i:4:p:517-31 is not listed on IDEAS
  21. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
  22. Adriana D. Kugler & Gilles Saint-Paul, 2004. "How Do Firing Costs Affect Worker Flows in a World with Adverse Selection?," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 553-584, July.
  23. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  24. Alain Delacroix, 2003. "Transitions into Unemployment and the Nature of Firing Costs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 651-671, July.
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  29. repec:oup:restud:v:57:y:1990:i:3:p:381-402 is not listed on IDEAS
  30. Garibaldi, Pietro & Violante, Giovanni L, 2004. "The Employment Effects of Severance Payments with Wage Rigidities," CEPR Discussion Papers 4608, C.E.P.R. Discussion Papers.
  31. Giulio Fella & Gianluca Violante & Marco Cozzi, 2010. "The Non-neutrality of Severance Payments with Incomplete Markets," 2010 Meeting Papers 644, Society for Economic Dynamics.
  32. Shigeru Fujita & Garey Ramey, 2007. "Reassessing the Shimer facts," Working Papers 07-2, Federal Reserve Bank of Philadelphia.
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