Let's go to court! Firing costs and dismissal conflicts

Abstract

In this paper we analyze court outcomes of dismissal conflicts for several countries. We highlight two facts. First, the patterns found are extremely stable in every country over time. Second, two types of patterns are found: either the workers win most of the cases, or the worker and the firm win half the times each. We build a model of dismissal conflicts that explains these facts. The gap between the severance pay for fair and unfair dismissals is a key factor in the determination of such court outcomes. Those countries with a small gap have outcomes in which the workers win most of the time, and the average cost of firing is higher than in those countries with a smaller gap. This suggests that costly dismissals and rigid employment protection legislation are not necessarily synonymous.