Understanding Severance Pay Determination: Mandates, Bargaining, and Unions

Samuel Danthine, Markus Poschke and Stéphane Auray

No 967, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: While most of the literature on employment protection has focused on government-mandated severance pay, it has recently been documented that a substantial share of severance payments derives from private contracts or collective agreements. This paper studies the determination of these payments. We analyze the problem of joint bargaining over wages and severance payments and examine the impact of unions on these choices. To do so, we use a search and matching model with risk averse workers, in which we assume that workers may be unionized and that bargaining is over wages and severance pay. Bargaining results in levels of severance pay providing full insurance, which depend on the generosity of unemployment benefits and on the job finding rate. Unions opt for higher levels of severance pay given that their higher wage demands imply reduced job creation. Calibrated to 8 European economies, the model predicts bargained levels of severance pay which are close to those found in reality.

Date: 2016
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2016/paper_967.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:967

Access Statistics for this paper

More papers in 2016 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().