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Layoff Costs and Efficiency with Asymmetric Information

12 Pages Posted: 9 Nov 2009  

Alain Delacroix

University of Quebec at Montreal (UQAM)

Etienne Wasmer

Observatoire Fran├žais des Conjonctures Economiques (OFCE); Sciences Po; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Abstract

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

Delacroix, Alain and Wasmer, Etienne, Layoff Costs and Efficiency with Asymmetric Information. IZA Discussion Paper No. 4524. Available at SSRN: https://ssrn.com/abstract=1501940

Alain Delacroix

University of Quebec at Montreal (UQAM) ( email )

PB 8888 Station DownTown
Succursale Centre Ville
Montreal, Quebec H3C3P8
Canada

Etienne Wasmer

Observatoire Fran├žais des Conjonctures Economiques (OFCE) ( email )

69 Quai d'Orsay
Paris 75004
France

Sciences Po

56 rue Jacob
Paris Cedex 07, 75337
France

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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