Working Paper: CEPR ID: DP12554
Authors: Juan F. Jimeno; Marta MartÃnez-Matute; Juan Mora
Abstract: Labor courts may influence firing costs. Apart from the procedural costs, there is the likelihood that labor courts declare firings as unfair or nil, which significantly increase severance payments over those established for fair dismissals by Employment Protection Legislation. In this paper we model the determinants of the wedge between mandated and effective firing costs arising from labor courts resolution of dismissals, and show how it is affected by EPL reforms, looking at recent EPL reforms in Spain (implemented in 2010 and 2012) that significantly widened the definition of fair economic dismissals.
Keywords: employment protection legislation; firing costs; unemployment
JEL Codes: J52; J53; K31; K41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor courts influence effective firing costs (J32) | severance payments (J65) |
| EPL reforms widen definition of fair economic dismissals (J63) | effective firing costs (J32) |
| EPL reforms lead to an increase in out-of-court settlements (K41) | effective firing costs (J32) |
| deteriorating local labor market conditions (F66) | effective firing costs (J32) |
| widening of fair causes does not lead to substantial change in judicial behavior (K49) | effective firing costs (J32) |