Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282536 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10848
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Employment protection harms early-career employees without benefitting them in later career stages (Leonardi and Pica, 2013). We demonstrate that this pattern can result from employers exploiting naïve present-biased employees. Employers offer a dynamic contract with low early-career wages, an unattractive intermediate qualification stage, and high end-of-career wages. Upon reaching the qualification stage, present-biased employees exchange future wages for immediate rewards on an alternative career path – a choice unanticipated by their previous, naïve, self. Thus, employers never pay high future wages. Firing costs help employers indicate that they will not oust employees instead of making promised payments, enabling early-career wage cuts.
Subjects: 
employment protection laws
present bias
dynamic contracting
JEL: 
D21
D90
J33
K31
M52
Document Type: 
Working Paper
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