Joint with MILLS Milan Labour Lunch Seminars

Abstract: Dismissal costs are shaped by firm and worker behavior. While they might coordinate to minimize costs, adversarial separations may also entail cost-seeking actions (''conflict''), such as sabotage or litigation. This paper quantifies the share of dismissals distorted by conflict and identifies the drivers. Our strategy exploits the choice between two modes of separation in France: personal dismissals and "separations by mutual agreement'' (SMAs). Since SMAs waive dismissal red tape costs, enable severance pay bargaining and preclude litigation, they should always be preferred to dismissals in an efficient bargaining model. In contrast, we find that only 12\% of potential dismissals are resolved through SMAs. Surveying HR directors, we identify  three underlying drivers of conflict: (i) hostility between the employer and the employee, (ii) employers using dismissals to maintain incentives (as a "discipline device''), and (iii) asymmetric beliefs about subsequent labor court outcomes.
Our survey elicits the probability that dismissals would end in SMAs in counterfactual scenarios. We find that SMAs would replace 67\% of dismissals if the three factors were absent. To substantiate these survey results, we document that dismissals plausibly less subject to those drivers of conflict actually do more frequently convert into SMAs, such as at workplaces where employers and employee report harmonious relationships and at the age discontinuity for UI-based early retirement.

for information patrizia.pellizzari@unibocconi.it