Do entry wages increase when severance pay drops? Not in recessions
Do entry wages increase when severance pay drops? Not in recessions
Severance pay may generate employment effects if wages are rigid. We study this by analysing a reform introduced during a recession that reduced severance pay for new hires while leaving it unchanged for previously-hired employees. We exploit this grandfathering dimension using a regression-discontinuity approach and long monthly data. We find that entry wages did not increase following the reduction in severance. This suggests that severance adjustments over the business cycle may reduce employment fluctuations.
About Authors
Pedro Martins
Pedro S. Martins is Professor of Economics at Nova SBE. He earned his PhD in Economics from the University of Warwick in 2004. Pedro is a labour economist, having published in several leading journals, including Journal of Labor Economics, American Economic Journal (…)