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| Author: | Pissarides, C.A. |
| Title: | Why do firms offer "employment protection"? |
| Journal: | Economica
2010 : OCT, VOL. 77:308 p. 613-636 |
| Index terms: | companies workers risk contracts unemployment insurance moral hazard incentives |
| Language: | eng |
| Abstract: | This article derives optimal employment contracts when workers are risk-averse and there are employment and unemployment risks. Without income insurance, consumption increases during employment and decreases during unemployment. Severance compensation smooths consumption during employment, and dismissal delays insure partially against the unemployment risk because of moral hazard. During the delay, consumption falls to give incentives to the worker to search for another job. No dismissal delays are optimal if exogenous unemployment compensation is sufficiently generous. |
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