Labor-market Frictions, Incomplete Insurance and Severance Payments
We analyze the effects of government-mandated severance payments in a rich life-cycle model with search-matching frictions in the labor market, risk-averse agents and imperfect insurance against idiosyncratic shocks. Our model emphasizes a tension between workerfirm wage bargains and consumption smoothing: entry wages respond to expected future severance payments by tilting downwards, which runs counter to having a smooth consumption path. Quantitatively, we find that these wage-shifting effects are sizable enough for severance payments to produce large welfare losses. Our assessment contrasts sharply with previous studies that restricted the extent of worker-firm bargaining to analyze the welfare implications of severance payments.
Year of publication: |
2018
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Authors: | Lalé, Étienne |
Publisher: |
Montréal : Université du Québec à Montréal, École des sciences de la gestion (ESG UQAM), Département des sciences économiques |
Saved in:
freely available
Series: | Document de travail ; 2018-30 |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | hdl:10419/234785 [Handle] |
Source: |
Persistent link: https://www.econbiz.de/10012542488
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