Title: The impact of severance pay reforms in Portugal on on-the-job search and worker flows
Abstract: As part of the labour market reforms, Portugal significantly reduced the severance pay entitlements of workers (and of new hires in particular – see Chapter 1 and Annex A for further detail). The primary objective of these reforms was to encourage a more efficient re-allocation of labour resources. With lower severance pay entitlements, workers might be less reluctant to switch jobs, resulting in increased on-the-job search and job-to-job flows. For employers, lower severance pay could increase both hiring and firing rates. However, as a result of grandfathering171, accumulated severance pay entitlements were preserved by the reform. One would therefore expect the largest (short-run) effects of the reform to be on hiring only (and possibly on the firing/job-to-job moves of new hires). In addition, because the reduction in severance pay was larger for permanent than for temporary contracts, one might expect to see an increase in the share of hiring that is on permanent contracts. At the same time, it is important to remember that severance pay was cut for both types of contract, and so the reform should have encouraged hiring on temporary as well as on permanent contracts.
Publication Year: 2017
Publication Date: 2017-02-21
Language: en
Type: book-chapter
Indexed In: ['crossref']
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