Severance payments in equilibrium unemployment |
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| Affiliation: | 1. Institute of Economic Research, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo, 186-8603, Japan;2. Institute for the Study of Labor (IZA);1. Hitotsubashi University, Japan;2. RIETI, Japan;3. The University of Tokyo, Japan;4. IZA, Germany;5. University of Western Ontario, Canada |
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| Abstract: | Under the insider wage model of Mortensen and Pissarides [Mortensen, D.T., Pissarides, C.A., 1994. Job creation and job destruction in the theory of unemployment. Review of Economic Studies 61, 397–415], this paper shows that (1) severance pay negatively affects market tightness (vacancy to unemployment ratio) and (2) the amount of severance pay is limited thereby insuring the employer a rational bargaining outcome. |
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