Understanding the Determination of Severance Pay: Mandates, Bargaining, and Unions

Stéphane Auray, Samuel Danthine and Markus Poschke

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Abstract: Asubstantial share of severance payments derives from private contracts or collective agreements. In this paper, we study the determination of these payments. We analyze joint bargaining over wages and severance payments in a search-and-matching model with risk-averse workers. Individual bargaining results in levels of severance pay that provide full insurance, but also depend on unemployment benefits and job-finding rates. Unions also choose full insurance. Because their higher wage demands reduce job creation, this requires higher severance pay. Severance pay observed in eight European countries, to which we calibrate the model, lies between predictions from the bargaining and union scenarios.

Keywords: Bargaining; Severance pay; Unemployment insurance; Unions (search for similar items in EconPapers)
Date: 2020
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03455965v1
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Citations: View citations in EconPapers (2)

Published in Scandinavian Journal of Economics, 2020, 122 (3), pp.1073 - 1111. ⟨10.1111/sjoe.12367⟩

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Related works:
Journal Article: Understanding the Determination of Severance Pay: Mandates, Bargaining, and Unions (2020)
Working Paper: Understanding the Determination of Severance Pay: Mandates, Bargaining, and Unions (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:hal-03455965

DOI: 10.1111/sjoe.12367

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