Fella, Giulio (2012): Matching, Wage Rigidities and Efficient Severance Pay.
Download (349kB) | Preview
This paper studies the effect mandated severance pay in a matching model featuring wage rigidity for ongoing, but not new, matches and Pareto efficient spot renegotiation of mandated severance pay. Severance pay matters only if real wage rigidities imply inefficient separation under employment at will. In such a case, large enough severance payments reduce job destruction and increase job creation and social efficiency, under very mild conditions. Efficient renegotiation implies that severance pay never results in privately inefficient labour hoarding and that its marginal effect is zero when its size exceeds that which induces the same allocation that would prevail in the absence of wage rigidity. These results hold under alternative micro-foundations for wage rigidity.
|Item Type:||MPRA Paper|
|Original Title:||Matching, Wage Rigidities and Efficient Severance Pay|
|English Title:||Matching, Wage Rigidities and Efficient Severance Pay|
|Keywords:||Severance pay; renegotiation; wage rigidity|
|Subjects:||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
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J65 - Unemployment Insurance ; Severance Pay ; Plant Closings
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search
|Depositing User:||Giulio Fella|
|Date Deposited:||07. May 2012 14:41|
|Last Modified:||13. Feb 2013 22:55|
Alvarez, Fernando and Veracierto, Marcelo (2001), ‘Severance payments in an economy with search frictions’, Journal of Monetary Economics 47, 477–498.
Bagnoli, Mark and Bergstrom, Ted (2005), ‘Log-concave probability and its applications’, Economic Theory 26(2), 445–469.
Bentolila, Samuel and Bertola, Giuseppe (1990), ‘Firing costs and labor demand: How bad is eurosclerosis?’, Review of Economic Studies 57, 381–402.
Bertola, Giuseppe (1990), ‘Job security, employment and wages’, European Economic Review 34, 851–886.
Binmore, Ken G., Rubinstein, Ariel and Wolinsky, Asher (1986), ‘The Nash bargaining solution in economic modelling’, Rand Journal of Economics 17, 176–188.
Blanchard, Olivier and Portugal, Pedro (2000), ‘What hides behind an unemployment rate: Comparing Portuguese and U.S. labor markets’, American Economic Review 91, 187–207.
Booth, Alison L. (1995), The Economics of the Trade Union, Cambridge University Press, Cambridge: UK.
Burda, Michael C. (1992), ‘A note on firing costs and severance benefits in equilibrium unemployment’, Scandinavian Journal of Economics 94, 479–489.
Coles, Melvyn G. and Hildreth, Andrew (2000), ‘Wage bargaining, inventories and union legislation’, Review of Economic Studies 67, 273–293.
Edlin, Aaron S. and Shannon, Chris (1998), ‘Strict monotonicity in comparative statics’, Journal of Economic Theory 81, 201–219.
Fella, Giulio (1999), When do firing costs matter? Working Paper N. 400, Queen Mary, University of London.
Fella, Giulio (2000), ‘Efficiency wages and efficient redundancy pay’, European Economic Review 44, 1473–1490.
Fella, Giulio (2005), ‘Termination restrictions and investment in general training’, Euro- pean Economic Review 49, 1479–1499.
Fella, Giulio (2007), ‘When do firing taxes matter?’, Economics Letters 97, 24–31.
Fernandez, Raquel and Glazer, Jacob (1991), ‘Striking for a bargain between two completely informed players’, American Economic Review 81, 240–252.
Galdon-Sanchez, Jose' E. and Guell, Maia (2003), ‘Dismissal conflicts and unemployment’, o a e u European Economic Review 47, 323–335.
Garibaldi, Pietro and Violante, Giovanni L. (2005), ‘The employment effects of severance payments with wage rigidities’, Economic Journal 115, 799–832.
Hall, Robert E. and Milgrom, Paul R. (2008), ‘The limited influence of unemployment on the wage bargain’, American Economic Review 98, 1653–74.
Haller, Hans and Holden, Steinar (1990), ‘A letter to the editor on wage bargaining’, Journal of Economic Theory 52, 232–236.
Hosios, Arthur J. (1990), ‘On the efficiency of matching and related models of search and unemployment’, Review of Economic Studies 57, 279–298.
IDS (Income Data Service) (2000), IDS employment Europe 458, Technical report, Lon- don: Income Data Service.
Lazear, Edward P. (1990), ‘Job security provisions and employment’, Quarterly Journal of Economics 105, 699–726.
Ljungqvist, Lars (2002), ‘How do layoff costs affect employment?’, Economic Journal 112, 829–853.
MacLeod, W. Bentley and Malcomson, James M. (1993), ‘Investments, holdup and the form of market contracts’, American Economic Review 83, 811–837.
MacLeod, W. Bentley and Malcomson, James M. (1995), ‘Contract bargaining with symmetric information’, Canadian Journal of Economics 28, 336–367.
Masters, Adrian (1999), ‘Wage posting in two-sided search and the minimum wage’, International Economic Review 40, 809–826.
Merlo, Antonio and Wilson, Charles (1995), ‘A stochastic model of sequential bargaining with complete information’, Econometrica 63, 371–399.
Millard, Stephen P. and Mortensen, Dale T. (1997), The unemployment and welfare ef- fects of labour market policy: A comparison of the US and the UK, in Dennis Snower and Guillermo de la Dehesa, eds, ‘Unemployment Policy: Government Options for the Labour Market’, Cambridge University Press, Cambridge: UK.
Mortensen, Dale T. and Pissarides, Christopher A. (1994), ‘Job creation and job destruc- tion in the theory of unemployment’, Review of Economic Studies 61, 397–415.
Mortensen, Dale T. and Pissarides, Christopher A. (1999), Job reallocation, employment fluctuations and unemployment, in John B. Taylor and Michael Woodford, eds, ‘Handbook of Macroeconomics’, Vol. 1B, Elsevier Science B.V., Amsterdam, The Netherlands, pp. 1171–1228.
Pissarides, Christopher A. (2000), Equilibrium Unemployment Theory, MIT Press, Cam- bridge, MA.
Postel-Vinay, Fabien and Turon, H ́l`ne (2011), Severance packages. Mimeo, University ee of Bristol.
Rocheteau, Guillaume (2002), ‘Working time regulation in a search economy with worker moral hazard’, Journal of Public Economics 84, 387–425.
Saint-Paul, Gilles (1995), ‘Efficiency wage, commitment and hysteresis’, Annales d’Economie et de Statistique 37-38, 39–53.
Saint-Paul, Gilles (2002), ‘The political economy of employment protection’, Journal of Political Economy 110, 672–704.
Shapiro, Carl and Stiglitz, Joseph E. (1984), ‘Equilibrium unemployment as a worker discipline device’, American Economic Review 74, 433–444.
Toharia, Luis and Ojeda, Antonio (1999), ‘The management of redundancies in Europe: The case of Spain’, Labour 13, 237–267.
Wolinsky, Asher (1987), ‘Matching, search and bargaining’, Journal of Economic Theory 42, 311–333.