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Understanding the Determination of Severance Pay: Mandates, Bargaining, and Unions

Author

Listed:
  • Stéphane Auray

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Samuel Danthine

    (ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz])

  • Markus Poschke

Abstract

Asubstantial share of severance payments derives from private contracts or collective agreements. In this paper, we study the determination of these payments. We analyze joint bargaining over wages and severance payments in a search-and-matching model with risk-averse workers. Individual bargaining results in levels of severance pay that provide full insurance, but also depend on unemployment benefits and job-finding rates. Unions also choose full insurance. Because their higher wage demands reduce job creation, this requires higher severance pay. Severance pay observed in eight European countries, to which we calibrate the model, lies between predictions from the bargaining and union scenarios.

Suggested Citation

  • Stéphane Auray & Samuel Danthine & Markus Poschke, 2020. "Understanding the Determination of Severance Pay: Mandates, Bargaining, and Unions," SciencePo Working papers Main hal-03455965, HAL.
    • Handle: RePEc:hal:spmain:hal-03455965
    DOI: 10.1111/sjoe.12367
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03455965v1
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    Cited by:

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    3. Eunice S. Han, 2023. "What did unions do for union workers during the COVID‐19 pandemic?," British Journal of Industrial Relations, London School of Economics, vol. 61(3), pages 623-652, September.

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    More about this item

    Keywords

    Bargaining; Severance pay; Unemployment insurance; Unions;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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