Earnings-related Severance Pay

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 27.07.2004, 12:15 - 13:30


Presentation by 

Laszlo Goerke (IAAEU, University of Trier)


Lump-sum severance pay from which shirkers can be excluded raises employment in an efficiency wage economy. However, severance payments are usually related to wages. It is shown that earnings-related, mandated severance pay will have ambiguous employment effects if effort can be varied continuously. A substitution of the earnings-related for the lump-sum component reduces employment. Thus, the predominating form of severance payments in OECD countries might have less advantageous employment effects than previously conjectured.

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