Firing tax vs severance payments – an unequal comparison

Dennis Wesselbaum

Journal of Economic Studies, 2014, vol. 41, issue 5, 721-736

Abstract: Purpose - – The purpose of this paper is to compare two elements of lay-off costs in a dynamic model of the labor market and analyze the differences for business cycle dynamics and welfare. Design/methodology/approach - – The paper builds a general equilibrium Real Business Cycle model and introduces firing costs and severance payments. Labor market frictions are assumed to follow the famous search and matching approach. Findings - – The paper finds that firing costs imply a higher volatility over the cycle and have stronger negative welfare effects. Severance payments have a lower volatility, reduce unemployment, and reduce welfare by a smaller amount. Practical implications - – Policy reforms should be aimed to use severance payments and reduce the ring cost component of lay-off costs. Originality/value - – Increasing welfare and a more stable business cycle could be supported by using severance payments instead of firing costs.

Keywords: Welfare; Business cycle; Firing costs; Severance payments; Lay-off costs; Firing tax (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
Working Paper: Firing Tax vs. Severance Payment - An Unequal Comparison (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:v:41:y:2014:i:5:p:721-736

DOI: 10.1108/JES-09-2012-0136

Access Statistics for this article

Journal of Economic Studies is currently edited by Prof Mohsen Bahmani-Oskooee

More articles in Journal of Economic Studies from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().