Labor-market Frictions, Incomplete Insurance and Severance Payments

Etienne Lalé ()

Review of Economic Dynamics, 2019, vol. 31, 411-435

Abstract: We analyze the effects of government-mandated severance payments in a rich life-cycle model with search-matching frictions in the labor market, risk-averse agents and imperfect insurance against idiosyncratic shocks. Our model emphasizes a tension between worker-firm wage bargains and consumption smoothing: entry wages respond to expected future severance payments by tilting downwards, which runs counter to having a smooth consumption path. Quantitatively, we find that these wage-shifting effects are sizable enough for severance payments to produce large welfare losses. Our assessment contrasts sharply with previous studies that restricted the extent of worker-firm bargaining to analyze the welfare implications of severance payments. (Copyright: Elsevier)

Keywords: Severance payments; Labor-market frictions; precautionary savings; welfare (search for similar items in EconPapers)
JEL-codes: E21 I38 J63 J65 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2018.10.001
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Labor-market Frictions, Incomplete Insurance and Severance Payments" (2018)
Working Paper: Labor-market Frictions, Incomplete Insurance and Severance Payments (2018)
Working Paper: Labor-market Frictions, Incomplete Insurance and Severance Payments (2016)
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:red:issued:16-237

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2018.10.001

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().