Severance Pay Rules And Structural Layoff Decisions

Oliver Fabel ()

Schmalenbach Business Review (sbr), 2002, vol. 54, issue 2, pages 118-135

Abstract: The paper develops a formal model of the optimal age-tenure structure in layoff decisions. Based on a linear Bayesian learning process a severance pay rule, which is derived from voluntary participation and separation conditions for individual workers, determines the dismissal costs. An optimal selection policy generally equalizes the expected profit contributions over the marginal workers retained in each age-group. Given plausible assumptions, the selection criteria and layoff rates for older workers decrease. However, the effect of tenure on selection and layoff rates remains ambiguous.

JEL-codes: J65 J21 D83 (search for similar items in EconPapers)
Date: 2002
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Persistent link: http://EconPapers.repec.org/RePEc:sbr:abstra:v:54:y:2002:i:2:p:118-135

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