Do Firms and Workers Bargain During Dismissals?

Pauline Carry and Benjamin Schoefer
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Pauline Carry: Princeton University
Benjamin Schoefer: UC Berkeley

Working Papers from Princeton University, Department of Economics, Industrial Relations Section.

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: France (search for similar items in EconPapers)
JEL-codes: J41 K31 M51 (search for similar items in EconPapers)
Date: 2026-09
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