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Do Firms and Workers Bargain During Dismissals?

Author

Listed:
  • Pauline Carry

    (Princeton University)

  • Benjamin Schoefer

    (UC Berkeley)

Abstract

Dismissals are costly to both firms and workers. Do they bargain to reduce these costs? We identify negotiation of separation terms by exploiting the introduction of “separations by mutual agreement†(SMA) in France. Compared to dismissals, the SMA eliminates red tape, forecloses litigation, allows bargained severance, reduces stigma, and preserves unemployment insurance eligibility. First, we find that take-up of SMAs during dismissals is only 11%, despite large gains from trade. Second, take-up is zero for dismissals headed for litigation, low in adversarial work environments, and 38%in cooperative dismissals enabling early retirement. Third, surveying HR directors, we identify three barriers to bargaining: hostility, maintaining discipline among the remaining workforce, and asymmetric beliefs about litigation outcomes.

Suggested Citation

  • Pauline Carry & Benjamin Schoefer, 2026. "Do Firms and Workers Bargain During Dismissals?," Working Papers 666a, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:666a
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    File URL: https://irs.princeton.edu/publications/working-papers/666a
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    Keywords

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    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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