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IZA Discussion Paper No. 4524
October 2009
Layoff Costs and Efficiency with Asymmetric Information
Alain Delacroix, Etienne Wasmer

Wage determination under asymmetric information generates inefficiencies due to excess turnover. Severance pay and layoff taxes can improve efficiency. We show that inefficient separations can even be fully removed with fixed separation taxes in the case where the relevant private information is exponentially distributed.

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Olga Nottmeyer
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The IZA@LISER Network is a global community of scholars dedicated to excellence in labor economics and related fields, now coordinated at the Luxembourg Institute of Socio-Economic Research (LISER) following its transition from Bonn.

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