Layoff Costs and Efficiency with Asymmetric Information
University of Quebec at Montreal (UQAM)
Observatoire Français des Conjonctures Economiques (OFCE); Sciences Po; Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR)
IZA Discussion Paper No. 4524
Wage determination under asymmetric information generates inefficiencies due to excess turnover. Severance pay and layoff taxes can improve efficiency. We show that inefficient separations can even be fully removed with fixed separation taxes in the case where the relevant private information is exponentially distributed.
Number of Pages in PDF File: 12
Keywords: bargaining, asymmetric information, employment protection legislation, inefficient job separations
JEL Classification: J41, J60
Date posted: November 9, 2009
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