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Do Larger Severance Payments Increase Individual Job Duration?

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  • Garibaldi, Pietro
  • Pacelli, Lia
Abstract
This Paper analyses the effect of severance payments on the probability of separation at given tenure, wages and other individual and firm characteristics. It studies a mandatory deferred wage scheme of the Italian labour market (Trattamento di Fine Rapporto, TFR). Deferred wages increase job duration if two conditions hold: wages are rigidly set outside the employer-employee relationship, and past provisions are accumulated at interest rates that are below market rates. Under such circumstances, workers who withdraw from their accumulated stock of unpaid wages should experience, at given tenure, a subsequent increase in the probability of separation. This prediction appears empirically robust and quantitatively sizeable. A withdraw of 60% of the TFR stock (the median observed withdraw) increases the instantaneous hazard rate by almost 20%. In other words, an individual with at least ten years of tenure that experiences an early withdrawal increases his/her hazard rate from 10% to about 12%. A variety of robustness tests support these results.

Suggested Citation

  • Garibaldi, Pietro & Pacelli, Lia, 2004. "Do Larger Severance Payments Increase Individual Job Duration?," CEPR Discussion Papers 4607, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4607
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    Cited by:

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    2. Paolo Naticchioni & Emiliano Rustichelli & Antonio Scialà, 2006. "Employment Protection and Regional Worker Flows in Italy," Economia politica, Società editrice il Mulino, issue 3, pages 453-474.
    3. Antonio Romero-Medina & Matteo Triossi, 2013. "Games with capacity manipulation: incentives and Nash equilibria," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 41(3), pages 701-720, September.
    4. Boeri, Tito & Garibaldi, Pietro, 2019. "A tale of comprehensive labor market reforms: Evidence from the Italian jobs act," Labour Economics, Elsevier, vol. 59(C), pages 33-48.
    5. Batut, Cyprien & Maurin, Eric, 2019. "From Ultima Ratio to Mutual Consent: The Effects of Changing Employment Protection Doctrine," IZA Discussion Papers 12440, Institute of Labor Economics (IZA).
    6. Riccardo Calcagno & Roman Kraeussl & Chiara Monticone, 2011. "An analysis of the effects of the severance payment reform on credit to Italian SMEs," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 3(3), pages 243-261, August.
    7. Grassi, Emanuele, 2009. "EPL and Job Contract Conversion Rate: The Italian CFL Case," MPRA Paper 12679, University Library of Munich, Germany.
    8. Garcia-Louzao, Jose, 2022. "Workers’ job mobility in response to severance pay generosity," Labour Economics, Elsevier, vol. 75(C).
    9. Ahrens, Steffen & Wesselbaum, Dennis, 2009. "On the introduction of firing costs," Kiel Working Papers 1559, Kiel Institute for the World Economy (IfW Kiel).
    10. Ashok Thomas & Luca Spataro, 2013. "Pension funds and Market Efficiency: A review," Discussion Papers 2013/164, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    11. Per Skedinger, 2010. "Employment Protection Legislation," Books, Edward Elgar Publishing, number 13686.
    12. Monica Galizzi & Roberto Leombruni & Lia Pacelli & Antonella Bena, 2014. "Wages and return to work of injured workers," LABORatorio R. Revelli Working Papers Series 139, LABORatorio R. Revelli, Centre for Employment Studies.
    13. Lorenzo Corsini & Pier Mario Pacini & Luca Spataro, 2012. "Workers' Choice on Pension Schemes," Public Finance Review, , vol. 40(2), pages 207-239, March.
    14. Vincenzo Carrieri & Cinzia Di Novi & Rowena Jacobs & Silvana Robone, 2012. "Well-being and psychological consequences of temporary contracts: the case of younger Italian employees," Working Papers 079cherp, Centre for Health Economics, University of York.

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    More about this item

    Keywords

    Severence payments; Employment protection legislation;

    JEL classification:

    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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