An Economic Analysis of Dismissal Legislation: Determinants of Severance Pay in West Germany

42 Pages Posted: 18 Nov 2009

See all articles by Laszlo Goerke

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Markus Pannenberg

University of Applied Sciences Bielefeld - Department of Business and Economics; DIW Berlin - GSOEP; Institute for the Study of Labor (IZA), Bonn

Date Written: November 1, 2009

Abstract

Severance pay is a vital part of employment protection legislation (EPL). We investigate the incidence and level of severance pay for dismissed employees. Our theoretical model predicts that not only the law and its interpretation by labour courts but also the costs of a suit have an impact. Using West German panel data for 1991-2006, we find that the employees' costs resulting from a suit and the legal determinants of such transfers affect the incidence of severance payments. In contrast, their level only varies with legal regulations. Our results imply that the strictness of EPL in Germany varies with extra-legal factors like employees' financial constraints.

Keywords: employment protection legislation, labour law, severance pay, survey data

JEL Classification: J65, K31, C23, C24

Suggested Citation

Goerke, Laszlo and Pannenberg, Markus, An Economic Analysis of Dismissal Legislation: Determinants of Severance Pay in West Germany (November 1, 2009). Available at SSRN: https://ssrn.com/abstract=1507299 or http://dx.doi.org/10.2139/ssrn.1507299

Laszlo Goerke (Contact Author)

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

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Trier, 54296
Germany

HOME PAGE: http://www.iaaeu.de/

CESifo (Center for Economic Studies and Ifo Institute)

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IZA Institute of Labor Economics

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Germany

Markus Pannenberg

University of Applied Sciences Bielefeld - Department of Business and Economics ( email )

Universitätsstrasse 25
Bielefeld, D-33615
Germany
+49 521 106-5076 (Phone)
+49 521 106-5086 (Fax)

HOME PAGE: http://aix5.fh-bielefeld.de/~mpannenb/index.html

DIW Berlin - GSOEP ( email )

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Berlin, 10117
Germany

Institute for the Study of Labor (IZA), Bonn

P.O. Box 7240
Bonn, D-53072
Germany

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