An Economic Analysis of Dismissal Legislation: Determinants of Severance Pay in West Germany
University of Trier - Institute of Labour Law and Industrial Relations in the European Community; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)
University of Applied Sciences Bielefeld - Department of Business and Economics; DIW Berlin - GSOEP; Institute for the Study of Labor (IZA), Bonn
November 1, 2009
Severance pay is a vital part of employment protection legislation (EPL). We investigate the incidence and level of severance pay for dismissed employees. Our theoretical model predicts that not only the law and its interpretation by labour courts but also the costs of a suit have an impact. Using West German panel data for 1991-2006, we find that the employees' costs resulting from a suit and the legal determinants of such transfers affect the incidence of severance payments. In contrast, their level only varies with legal regulations. Our results imply that the strictness of EPL in Germany varies with extra-legal factors like employees' financial constraints.
Number of Pages in PDF File: 42
Keywords: employment protection legislation, labour law, severance pay, survey data
JEL Classification: J65, K31, C23, C24working papers series
Date posted: November 18, 2009
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