Wesselbaum, Dennis (2010): Firing Tax vs. Severance Payment - An Unequal Comparison.
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Empirical evidence indicates that lay-off costs consist of two elements, namely firing costs and severance payments. This paper investigates business cycle and steady state effects of firing costs and severance payments and discusses the differences. We find that severance payments imply a lower volatility of key labor market variables compared with firing costs. Persistently increasing those costs, reduces the welfare in the model economy, but increases employment. The reason for the different performance is the impact on the wage and the additional stimulus caused by severance payments. The social planner therefore faces a trade-off in the design of employment protection. Furthermore, the appropriate design of lay-off costs also has strong implications for the design of other elements of employment protection.
|Item Type:||MPRA Paper|
|Original Title:||Firing Tax vs. Severance Payment - An Unequal Comparison|
|Keywords:||Firing Costs, Severance Payments, Welfare.|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity
D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis
|Depositing User:||Dennis Wesselbaum|
|Date Deposited:||19. Aug 2010 06:37|
|Last Modified:||15. Feb 2013 21:43|
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Firing Tax vs. Severance Payment - An Unequal Comparison. (deposited 04. Oct 2009 13:45)
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