Firing Costs, Employment Fluctuations and Average Employment: An Examination of Germany
Posted: 13 Jan 2001
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Firing Costs, Employment Fluctuations and Average Employment: An Examination of Germany
Abstract
West Germany's Employment Promotion Act of 1985 facilitated the use of fixed-term contracts and increased the number of dismissals above which the employer is required to establish a "social plan" (involving severance payments). I assess the effect of this reduction in "firing costs" on movements in employment, using monthly data on a panel of detailed manufacturing industries for 1977-92. I also examine the effect of introducing flexible hours of work in certain industries beginning in 1985. I find that employment adjustment was unaffected by the lower firing costs, but slowed by the greater working hours flexibility
JEL Classification: J4, J5
Suggested Citation: Suggested Citation