Layoff Costs and Efficiency with Asymmetric Information
12 Pages Posted: 9 Nov 2009
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.
Keywords: bargaining, asymmetric information, employment protection legislation, inefficient job separations
JEL Classification: J41, J60
Suggested Citation: Suggested Citation