Job Displacement Risk And Severance Pay

Giulio Fella and Marco Cozzi

No 1338, Working Paper from Economics Department, Queen's University

Abstract: This paper is a quantitative, equilibrium study of the insurance role of severance paywhen workers face displacement risk and markets are incomplete. A key feature ofour model is that, in line with an established empirical literature, job displacemententails a persistent fall in earnings upon reemployment due to the loss of job-specifichuman capital. The model is solved numerically and calibrated to the US economy. Incontrast to previous studies that have analyzed severance payments in the absence ofpersistent earning losses, we find that the welfare gains from the insurance against jobdisplacement afforded by severance pay are sizable. These gains are higher if, as in mostOECD countries, severance pay increases with tenure. The result is a consequence ofthe higher persistence of earnings losses for workers with a larger stock of job-specifichuman capital at the time of displacement.

Keywords: Severance Payments; Incomplete Markets; Welfare (search for similar items in EconPapers)
JEL-codes: D52 D58 E24 J65 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2015-01
New Economics Papers: this item is included in nep-dge, nep-hrm, nep-lab, nep-lma and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1338.pdf First version 2015 (application/pdf)

Related works:
Journal Article: Job displacement risk and severance pay (2016)
Working Paper: Job Displacement Risk and Severance Pay (2016)
Working Paper: Job displacement risk and severance pay (2016)
Working Paper: Job Displacement Risk and Severance Pay (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1338

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