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An economic analysis of dismissal legislation: Determinants of severance pay in West Germany

  • Goerke, Laszlo
  • Pannenberg, Markus

Severance pay is a vital part of employment protection legislation (EPL). We investigate the incidence and level of severance pay for dismissed employees. Our theoretical model predicts that not only the law and its interpretation by labour courts but also the costs of a suit have an impact. Using West German panel data for 1991-2006, we find that the employees' costs resulting from a suit and the legal determinants of such transfers affect the incidence of severance payments. In contrast, their level only varies with legal regulations. Our results imply that the strictness of EPL in Germany varies with extra-legal factors like employees' financial constraints.

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Paper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 87.

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Date of creation: 2009
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Handle: RePEc:zbw:cegedp:87
Contact details of provider: Postal: Platz der Göttinger Sieben 3, 37073 Göttingen
Web page: http://www.cege.wiso.uni-goettingen.de/

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  1. Ioana Marinescu, 2011. "Are Judges Sensitive to Economic Conditions? Evidence from UK Employment Tribunals," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 64(4), pages 673-698, July.
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  6. Malo, M.A aand Joaquin Pérez., 2002. "Individual dismissals in Europe and the United States: A model on the influence of the legal framework on firing costs," Doctorado en Economía- documentos de trabajo 9/02, Programa de doctorado en Economía. Universidad de Alcalá..
  7. Christian Grund, 2006. "Severance payments for dismissed employees in Germany," European Journal of Law and Economics, Springer, vol. 22(1), pages 49-71, July.
  8. Eger, Thomas, 2003. "Opportunistic termination of employment contracts and legal protection against dismissal in Germany and the USA," International Review of Law and Economics, Elsevier, vol. 23(4), pages 381-403, December.
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  10. Nikolai Stähler, 2006. "Firing Costs, Severance Payments, Judicial Mistakes and Unemployment," Working Papers of the Research Group Heterogenous Labor 06-07, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.
  11. Christine Jolls, 2007. "Employment Law and the Labor Market," NBER Working Papers 13230, National Bureau of Economic Research, Inc.
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  13. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
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  15. Besancenot, Damien & Vranceanu, Radu, 2007. "Multiple Equilibria in a Firing Game With Impartial Justice," ESSEC Working Papers DR 07025, ESSEC Research Center, ESSEC Business School.
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  17. Huang, Chun-chieh & Chang, Juin-jen & Lai, Ching-chong, 2009. "Employment effect of dismissal pay in the presence of judicial mistakes," International Review of Law and Economics, Elsevier, vol. 29(1), pages 38-45, March.
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  23. repec:hal:wpaper:halshs-00203176 is not listed on IDEAS
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