Workers’ job mobility in response to severance pay generosity

This paper studies the impact of severance pay generosity on workers’ voluntary mobility. The identification strategy exploits a major labor market reform in Spain in February 2012 together with the exposure of some workers to a layoff shock. The results show that the reduction in severance pay induced by the reform made workers who may expect to be displaced in the near future more likely to voluntarily leave their employers. The findings indicate that policies targeting employers may also affect workers’ behavior. They further reveal the importance of taking into account the interactions between employment protection legislation and the unemployment insurance system.