Munich Personal RePEc Archive

Unemployment Risk and Payout Policies

Pezone, Vincenzo (2017): Unemployment Risk and Payout Policies.

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This paper argues that workers’ unemployment risk may induce firms to adopt conservative payout policies. I show that firms increase their dividend payout following sharp increases in unemployment insurance generosity, that reduce workers’ personal losses due to layoffs. Firms increase payout by about 6% following positive changes in protection for unemployed workers that are plausibly unrelated to macroeconomic conditions. This effect is driven by firms with poor growth prospects, high labor intensity, and in more volatile industries, suggesting that public insurance crowds out private insurance by firms. Thus, labor market considerations play an important role in shaping firms’ payout decisions.

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