Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/61004 
Year of Publication: 
2012
Series/Report no.: 
CESifo Working Paper No. 3898
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We identify the causal effect of lump-sum severance payments on non-employment duration in Norway by exploiting a discontinuity in eligibility at age 50. We find that a severance payment worth 1.2 months' earnings at the median lowers the fraction re-employed after a year by seven percentage points. Data on household wealth enable us to verify that the effect is decreasing in prior wealth, which favors an interpretation as liquidity constraints over the alternative of mental accounting. Finding liquidity constraints in Norway, despite its equitable wealth distribution and generous welfare state, means they are likely to exist also in other countries.
Subjects: 
unemployment
optimal unemployment insurance
liquidity constraints
mental accounting
severance pay
regression discontinuity design
JEL: 
C41
E21
E24
J65
Document Type: 
Working Paper
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