'Take it or Go to Court' - The Impact of Sec. 1a of the German Protection Against Dismissal Act on Severance Payments
35 Pages Posted: 16 Jul 2010
Date Written: July 15, 2010
In 2004, a section was added to the German Protection against Dismissal Act, establishing a new procedure to dismiss an employee, given a predetermined severance payment. Most legal scholars presume the change to be without impact, while a minority of experts claims it to be either beneficial or unfavourable to employees. Our theoretical model suggests that firms will use the new procedure, but that the change in payoffs is indeterminate and, therefore, an empirical issue. Exploiting the fact that collective dismissals are not directly affected by the amendment, difference-in-differences estimates based on panel data for West Germany indicate that the legal change did have a negative effect on severance pay.
Keywords: panel data, Protection against Dismissal Act, severance pay
JEL Classification: J65, K31, C23
Suggested Citation: Suggested Citation