IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp4967.html
   My bibliography  Save this paper

The Firing Cost Implications of Alternative Severance Pay Designs

Author

Listed:
  • Parsons, Donald O.

    (George Washington University)

Abstract

Economists have concerns about the firing cost implications of mandated severance plans. Analysis reveals that predicted severance plan consequences depend critically on the precise structure of the plan. Whether governments mandate (i) severance insurance plans or (ii) severance savings plans is important; savings plans have no "firing cost" effects on employer layoff decisions. The firing cost implications of insurance plan are sensitive to the types of job separations that qualify a worker for benefits. Plans that pay benefits across all separations are functionally severance savings plans. The variety of plan types is illustrated using U.S. and international examples.

Suggested Citation

  • Parsons, Donald O., 2010. "The Firing Cost Implications of Alternative Severance Pay Designs," IZA Discussion Papers 4967, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp4967
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp4967.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. James J. Heckman & Carmen Pagés, 2004. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Books, National Bureau of Economic Research, Inc, number heck04-1.
    2. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 699-726.
    3. Bruce C. Fallick, 1996. "A Review of the Recent Empirical Literature on Displaced Workers," ILR Review, Cornell University, ILR School, vol. 50(1), pages 5-16, October.
    4. Heckman, James J. & Pages, Carmen (ed.), 2004. "Law and Employment," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226322827, August.
    5. Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011. "Severance pay programs around the world : history, rationale, status, and reforms," Social Protection Discussion Papers and Notes 62726, The World Bank.
    6. John T. Addison & Paulino Teixeira, 2003. "The Economics of Employment Protection," Journal of Labor Research, Transaction Publishers, vol. 24(1), pages 85-129, January.
    7. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
    8. Reinhard Koman & Ulrich Schuh & Andrea Weber, 2005. "The Austrian Severance Pay Reform: Toward a Funded Pension Pillar," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 32(3), pages 255-274, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011. "Severance Pay Programs around the World: History, Rationale, Status, and Reforms," IZA Discussion Papers 5731, Institute of Labor Economics (IZA).
    2. Parsons, Donald O., 2011. "Mandated Severance Pay and Firing Cost Distortions: A Critical Review of the Evidence," IZA Discussion Papers 5776, Institute of Labor Economics (IZA).
    3. Ferrer, Ana M. & Riddell, W. Craig, 2009. "Unemployment insurance savings accounts in Latin America : overview and assessment," Social Protection Discussion Papers and Notes 49173, The World Bank.
    4. Parsons, Donald O., 2011. "Double-Sided Moral Hazard in Job Displacement Insurance Contracts," IZA Discussion Papers 6003, Institute of Labor Economics (IZA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Verónica Alaimo & Mariano Bosch & David S. Kaplan & Carmen Pagés & Laura Ripani, 2015. "Jobs for Growth," IDB Publications (Books), Inter-American Development Bank, number 90977, February.
    2. Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011. "Severance Pay Programs around the World: History, Rationale, Status, and Reforms," IZA Discussion Papers 5731, Institute of Labor Economics (IZA).
    3. Parsons, Donald O., 2016. "Job Displacement Insurance: A Policy Typology," IZA Discussion Papers 9865, Institute of Labor Economics (IZA).
    4. Arias, Omar & Blom, Andreas & Bosch, Mariano & Cunningham, Wendy & Fiszbein, Ariel & Lopez Acevedo, Gladys & Maloney, William & Saavedra, Jaime & Sanchez-Paramo, Carolina & Santamaria, Mauricio & Siga, 2005. "Pending issues in protection, productivity growth, and poverty reduction," Policy Research Working Paper Series 3799, The World Bank.
    5. Parsons, Donald O., 2011. "Mandated Severance Pay and Firing Cost Distortions: A Critical Review of the Evidence," IZA Discussion Papers 5776, Institute of Labor Economics (IZA).
    6. Milan Vodopivec, 2013. "Introducing unemployment insurance to developing countries," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-23, December.
    7. Donald O. Parsons, 2013. "Understanding severance pay," Cuadernos de Economía - Spanish Journal of Economics and Finance, Asociación Cuadernos de Economía, vol. 36(102), pages 155-165, Diciembre.
    8. Gayle Allard & Peter H. Lindert, 2006. "Euro-Productivity and Euro-Jobs since the 1960s: Which Institutions Really Mattered?," NBER Working Papers 12460, National Bureau of Economic Research, Inc.
    9. Amil Petrin & Jagadeesh Sivadasan, 2006. "Job Security Does Affect Economic Efficiency: Theory, A New Statistic, and Evidence from Chile," NBER Working Papers 12757, National Bureau of Economic Research, Inc.
    10. Okudaira, Hiroko, 2018. "The economic costs of court decisions concerning dismissals in Japan: Identification by judge transfers," International Review of Law and Economics, Elsevier, vol. 53(C), pages 60-75.
    11. Kuddo, Arvo, 2009. "Labor laws in Eastern European and Central Asian countries : minimum norms and practices," Social Protection Discussion Papers and Notes 51698, The World Bank.
    12. Marco Leonardi & Giovanni Pica, 2013. "Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation," Economic Journal, Royal Economic Society, vol. 123(12), pages 1236-1278, December.
    13. Djankov, Simeon & Ramalho, Rita, 2009. "Employment laws in developing countries," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 3-13, March.
    14. Kugler, Adriana D., 2005. "Wage-shifting effects of severance payments savings accounts in Colombia," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 487-500, February.
    15. Rita Almeida & Pedro Carneiro, 2012. "Enforcement of Labor Regulation and Informality," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 64-89, July.
    16. Parsons, Donald O., 2017. "Voluntary Employer-Provided Severance Pay," IZA Discussion Papers 11067, Institute of Labor Economics (IZA).
    17. Almeida, Rita & Carneiro, Pedro, 2008. "Mandated benefits, employment, and inequality in a dual economy," Social Protection Discussion Papers and Notes 45051, The World Bank.
    18. Donald O. Parsons, 2019. "The Simple Analytics Of Job Displacement Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 86(2), pages 351-380, June.
    19. Parsons, Donald O., 2017. "Employer-Provided Severance Pay: The Emergence of Job Displacement Insurance, 1930–1954," IZA Discussion Papers 11068, Institute of Labor Economics (IZA).
    20. Muravyev, Alexander, 2010. "Evolution of Employment Protection Legislation in the USSR, CIS and Baltic States, 1985-2009," IZA Discussion Papers 5365, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    severance pay; worker turnover; job displacement; firing costs;
    All these keywords.

    JEL classification:

    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp4967. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.