Reforming Severance Pay: An International Perspective

  • Date Published 16/05/2019
Reforming Severance Pay: An International Perspective
Reforming Severance Pay: An International Perspective

Throughout the developed and developing world there is growing demand for policies that would facilitate access to jobs by the most vulnerable, improve their earnings, and reduce their dependency on public support. As a result, governments are increasingly focused on removing obstacles faced by employers to create jobs and on instilling incentives for individuals to re-enter the labor market or to move toward more productive employment possibilities. Severance pay a program compensating formal workers for dismissal by employers or with an end-of-service benefit is often blamed for distorting employer hiring and firing decisions. Together with restrictive labor market regulations and other formal labor market features, this program is held responsible for excessive job protection with a negative impact on labor market outcomes, in particular affecting the most vulnerable. Despite this strong negative assessment among many labor market economists, surprisingly little is known about this program that exists in most countries around the world as a legally mandated benefit. This lack of knowledge may derive from the special 'positioning' of the program between labor code and social insurance; its origins were in the first policy domain, but its objectives for key programs were replicated in the second domain in particular unemployment and retirement benefits. This is the first-ever book to shed light on this program in a comprehensive manner its historical origins, its rationale, and its characteristics across the world. It reviews the soundness of the empirical accusation, assesses recent country reforms, and offers policy reform alternatives and policy guidance. The policy directions include folding severance pay into existing social insurance programs, where they exist, and to make severance pay contractual between market partners as a way to enhance efficiency in a knowledge-based economy. Folding severance pay into employment benefits may also be an opportunity to move away from unemployment insurance, which is fraught by moral hazard, toward a promising 'hybrid' system of unemployment insurance savings accounts supplemented by social pooling.

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Book Chapters

  • Preliminary PagesPreliminary Pages
  • Chapter 1Severance Pay Under Review: Key Issues, Policy Conclusions, And Research Agenda
  • Chapter 2Severance Pay Programs Around The World: History, Rationale, Status, And Reforms
  • Chapter 3Mandated Severance Pay And Firing Cost Distortions: A Critical Review Of The Evidence
  • Chapter 4The Firing Cost Implications Of Alternative Severance Pay Designs
  • Chapter 5Effects Of The Austrian Severance Pay Reform
  • Chapter 6Severance Pay Reform In The Republic Of Korea
  • Chapter 7Unemployment Insurance Savings Accounts In Latin America: Overview And Assessment
  • Chapter 8The Welfare Consequences Of Alternative Designs Of Unemployment Insurance Savings Accounts
  • Chapter 9The New Chilean Unemployment Insurance System: Combining Individual Accounts And Redistribution In An Emerging Economy
  • Chapter 10Reemployment Incentives Under The Chilean Hybrid Unemployment Benefit Program

Reforming Severance Pay: An International Perspective

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