Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/175232
Authors: 
Cozzi, Marco
Fella, Giulio
Year of Publication: 
2016
Series/Report no.: 
Working Paper 795
Abstract: 
This paper is a quantitative, equilibrium study of the insurance role of severance pay when workers face displacement risk and markets are incomplete. A key feature of our model is that, in line with an established empirical literature, job displacement entails a persistent fall in earnings upon re-employment due to the loss of tenure. The model is solved numerically and calibrated to the US economy. In contrast to previous studies that have analyzed severance payments in the absence of persistent earning losses, we find that the welfare gains from the insurance against job displacement afforded by severance pay are sizable.
Subjects: 
Severance payments
Incomplete markets
Welfare
JEL: 
E24
D52
D58
J65
Document Type: 
Working Paper

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