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Journal Article

Redundancy Pay and Collective Dismissals

Laszlo Goerke
FinanzArchiv / Public Finance Analysis
Vol. 59, No. 1 (2002/2003), pp. 68-90
Stable URL: http://www.jstor.org/stable/40912988
Page Count: 23
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Redundancy Pay and Collective Dismissals
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Abstract

Redundancy payments for collective dismissals are incorporated into a Shapiro-Stiglitz model of efficiency wages. It is shown that a lump-sum payment will lower wages, leaving employment and welfare unaffected if there are neither wage-dependent taxes nor additional firing costs. If payroll taxes exceed firing costs, employment and welfare will rise with redundancy payments. If these payments are also a function of previous wages or reduce unemployment benefits, positive employment effects will be mitigated or reversed. A substitution of wage-dependent for lump-sum redundancy payments can lower employment, allowing for a continuous variation of effort.

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