'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

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: July 15, 2010

Abstract

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

Goerke, Laszlo and Pannenberg, Markus, 'Take it or Go to Court' - The Impact of Sec. 1a of the German Protection Against Dismissal Act on Severance Payments (July 15, 2010). CESifo Working Paper Series No. 3120, Available at SSRN: https://ssrn.com/abstract=1640429

Laszlo Goerke (Contact Author)

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

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CESifo (Center for Economic Studies and Ifo Institute)

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IZA Institute of Labor Economics

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Markus Pannenberg

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

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Bielefeld, D-33615
Germany
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+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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