Workers' Job Mobility in Response to Severance Pay Generosity

Abstract

This paper studies the impact of severance pay generosity on workers' voluntary mobility decisions. The identification strategy exploits a major labor market reform in Spain in February 2012 together with the exposure of some workers to a layoff shock. I rely on rich administrative data to estimate a discrete time duration model with dynamic treatment effects. The results show that a decrease in mobility costs induced by a reduction in severance pay made workers who expected to be displaced in the near future more likely to voluntarily leave their employers. The results indicate that policies targeting employers may also affect workers' behavior. They further reveal the relevance of taking into account interactions between employment protection and unemployment insurance.