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'Take It or Go to Court': The Impact of Sec. 1a of the German Protection Against Dismissal Act on Severance Payments

Laszlo Goerke () and Pannenberg Markus
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Pannenberg Markus: IAAEG, Universität Trier; IZA, Bonn; and CESifo, München University of Applied Sciences Bielefeld; DIW Berlin; and IZA, Bonn

Review of Law & Economics, 2011, vol. 7, issue 2, pages 377-404

Abstract: In 2004, a section was added to the German Protection against Dismissal Act, establishing a new procedure to dismiss an employee, given a predetermined severance payment. Most legal scholars presume the change to be without impact, while a minority of experts claims it to be either beneficial or unfavorable to employees. Our theoretical model suggests that firms will use the new procedure, but that the change in payoffs is indeterminate and, therefore, an empirical issue. Exploiting the fact that collective dismissals are not directly affected by the amendment, difference-in-differences estimates based on panel data for West Germany indicate that the legal change did have a negative effect on severance pay.

Date: 2011
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Working Paper: 'Take it or Go to Court' - The Impact of Sec. 1a of the German Protection against Dismissal Act on Severance Payments - (2010) Downloads
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