Title

Do Firms and Workers Bargain During Dismissals?

Author(s)

Pauline Carry Pauline Carry (Princeton University)

Benjamin Schoefer Benjamin Schoefer (UC Berkeley)

Abstract

Dismissals are costly to both firms and workers. Do they bargain to reduce these costs? We identify negotiation of separation terms by exploiting the introduction of “separations by mutual agreement” (SMA) in France. Compared to dismissals, the SMA eliminates red tape, forecloses litigation, allows bargained severance, reduces stigma, and preserves unemployment insurance eligibility. First, we find that take-up of SMAs during dismissals is only 11%, despite large gains from trade. Second, take-up is zero for dismissals headed for litigation, low in adversarial work environments, and 38%in cooperative dismissals enabling early retirement. Third, surveying HR directors, we identify three barriers to bargaining: hostility, maintaining discipline among the remaining workforce, and asymmetric beliefs about litigation outcomes.

Creation Date

2026-09

Section URL ID

Paper Number

666a

URL

https://irs.princeton.edu/publications/working-papers/666a

File Function

Jel

J41; K31; M51

Keyword(s)

France

Suppress

false

Series

1