Severance Pay Rules And Structural Layoff Decisions

Oliver Fabel

Schmalenbach Business Review (sbr), 2002, vol. 54, issue 2, 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: D83 J21 J65 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (4)

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