This article provides estimates of the effect of statutory severance pay and notice on four labor market outcome indicators, closely following Lazear (1990) but correcting for errors in his dependent variables and covariates. Although we corroborate the directional influence of severance pay for three of the indicators, there is little to suggest that its contribution to rising unemployment is material. Also contrary to Lazear, longer notice appears to be associated with broadly favorable outcomes.

This paper presents new results on the relationship between severance pay and labor market performance for a sample of 21 OECD countries, 1956-84. Specifically, it evaluates Lazear's (1990) empirical argument that severance pay reduces employment and elevates joblessness. His findings are shown not to survive correction for errors in the data and the application of correct estimation procedures. Furthermore, adverse labor market consequences of severance pay are not detected in a dynamic characterization of the Lazear model. Limitations of the approach followed here-the focus on a single measure of employment protection and the parsimonious nature of the reduced form model-are also addressed and contextualized. JEL Codes: E24; J65. We thank, without implicating, two anonymous referees and Co-editor Kathy Hayes for helpful comments on earlier drafts of this paper.

For years, policymakers, business leaders, human resources professionals, and economists have attempted to explain the existence of unemployment. Unemployment inhibits the economic growth of a nation and contributes to the problem of ongoing poverty, which cannot be lessened without that growth. Understanding the causes of unemployment and developing policies and programs to decrease it are vitally important for nations around the world, but one key variable in the study of unemployment has been overlooked. That variable is culture. This article will show that culture can significantly explain cross‐national differences in unemployment rates and offers a link to understanding the global problem of poverty that plagues nations today. © 2012 Wiley Periodicals, Inc.

This paper presents new results on the relationship between severance pay and labor market performance for a sample of 21 OECD countries, 1956‐1984. Specifically, it evaluates Lazear's empirical argument that severance pay reduces employment and elevates joblessness. His findings are shown not to survive correction for errors in the data and the application of correct estimation procedures. Furthermore, adverse labor market consequences of severance pay are not detected in a dynamic characterization of the Lazear model. Limitations of the approach followed here are also addressed and contextualized.