Do Firms and Workers Bargain During Dismissals?

Pauline Carry and Benjamin Schoefer

No 19774, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Dismissals are costly to both firms and workers. Do they bargain to reduce these costs? We identify negotiation of separation terms by exploiting the introduction of “separations by mutual agreement†(SMA) in France. Compared to dismissals, the SMA eliminates red tape, forecloses litigation, allows bargained severance, reduces stigma, and preserves unemployment insurance eligibility. First, we find that take-up of SMAs during dismissals is only 11%, despite large gains from trade. Second, take-up is zero for dismissals headed for litigation, low in adversarial work environments, and 38% in cooperative dismissals enabling early retirement. Third, surveying HR directors, we identify three barriers to bargaining: hostility, maintaining discipline among the remaining workforce, and asymmetric beliefs about litigation outcomes.

Keywords: Employment protection legislation; Labor laws; Job Separations; Bargaining; Behavioral economics; Social interactions; Personnel economics (search for similar items in EconPapers)
JEL-codes: D9 E24 J5 J6 M5 (search for similar items in EconPapers)
Date: 2024-12
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Working Paper: Do Firms and Workers Bargain During Dismissals? (2024)
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