Earnings-Related Severance Pay

Laszlo Goerke

No 2232, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In an efficiency wage economy, lump-sum severance pay from which shirkers can be excluded raises employment. However, severance payments are usually related to wages. It is shown that earnings-related, mandated severance pay will have ambiguous employment effects if effort can be varied continuously. A substitution of the earnings-related for the lump-sum component reduces employment. Thus, the prevalent form of severance payments in OECD countries might have less advantageous employment effects than previously conjectured.

Keywords: earnings relationship; efficiency wages; employment; severance pay (search for similar items in EconPapers)
JEL-codes: J32 J41 J65 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2006-07
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (4)

Published - published in: Labour, 2006, 20 (4), 651-672

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Journal Article: Earnings‐related Severance Pay (2006)
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