Firing Costs, Unions and Employment

This paper develops a simple model of employment, non-statutory redundancy pay and wage determination. An interesting feature of this model is that the contract curve is vertical. Some of the predictions of the model are confronted with the available British data on non-statutory firing costs, from the 1990 Workplace Industrial Relations Survey. The estimates indicate: first, that bargaining over redundancy pay is more prevalent in plants with a strong union presence; second, that bargaining over redundancy pay has no impact on recent employment variation for plants in the sample; and third, that financial performance is unaffected by manual bargaining, but is positively associated with non-manual bargaining.