Draft available here: drive.google.com/file/d/1G5wG...

The majority of personal dismissals is distorted by deliberate cost seeking. Ans this extends beyond the choice of the separation mode.

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We confirm that dismissals are much more likely to end as SMAs in cooperative contexts.

Example: when workers can receive UI 3 years as a bridge into retirement.

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Mechanism 3: firms and workers have asymmetric beliefs about labor court outcomes after a dismissal.
(= disagreement on probability to win in cout or the amount).

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Mechanism 2: dismissals are used as a discipline device
(= employers choose to impose costly punitive dismissals to foster incentives with remaining employees).

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Mechanism 1: hostility between employers and employees
(= one of the parties is willing to lose some money for the other to incur a cost).

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To elicit the mechanisms, we surveyed HR directors.

In 63% of dismissals, the reason is conflict (= deliberate cost seeking). Without conflict, 67% of dismissals would end as SMAs, instead of 12%.

We find 3 main drivers:

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Yet, we find that only 12% of personal dismissals end as SMAs
—> in 88% of dismissals, the employer and the worker do not minimize separation costs.

WHY?

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We use the opportunity to replace a personal dismissal by a cheaper «separation by mutual agreement» (SMA) in France.
Introduced in 2008, SMAs eliminate red tape costs of EPL, preclude litigation, and allow severance pay bargaining.

=> Dismissals should end with SMAs.

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