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Overcompensation by severance payments

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An important aim of severance payments is to reduce the economic disadvantages of dismissed employees. However, it may well be the case that a considerable fraction of employees is actually better off, if they are re-employed shortly after their dismissal. This is the first attempt to estimate the relevance of overcompensation by severance payments. It is found that about 7% of dismissed employees or about one quarter of those with severance payments are overcompensated in Germany. In particular, employees with many years of tenure have chances to receive severance payments as well as wage increases in their new jobs subsequent to dismissal.

Document Type: Research Article


Affiliations: Rheinische Friedrich-Wilhelms-Universität Bonn Betriebswirtschaftliche Abteilung II Personal-und Organisationsökonomie, Adenauerallee 24-42, 53113 Bonn, Germany

Publication date: May 10, 2006

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