Do Firms and Workers Bargain During Dismissals?
Dismissals are costly to both firms and workers. Do they bargain to reduce these costs? We identify negotiation of separation terms by exploiting the introduction of “separations by mutual agreement” (SMA) in France. Compared to dismissals, the SMA eliminates red tape, forecloses litigation, allows bargained severance, reduces stigma, and preserves unemployment insurance eligibility. First, we find that take-up of SMAs during dismissals is only 11%, despite large gains from trade. Second, take-up is zero for dismissals headed for litigation, low in adversarial work environments, and 38% in cooperative dismissals enabling early retirement. Third, surveying HR directors, we identify three barriers to bargaining: hostility, maintaining discipline among the remaining workforce, and asymmetric beliefs about litigation outcomes.
-
-
Copy CitationPauline Carry and Benjamin Schoefer, "Do Firms and Workers Bargain During Dismissals?," NBER Working Paper 33245 (2024), https://doi.org/10.3386/w33245.Download Citation
-
Related
Topics
Programs
Working Groups
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals—the NBER Reporter, the NBER Digest, the Bulletin on Health, the Bulletin on the Economics of Alzheimer's, and the Bulletin on Entrepreneurship—as well as research spotlights, lectures, and panel videos.
