Redundancy pay, unions and employment

In this paper we estimate the determinants of bargaining over redundancy pay, and its impact on employment variation and financial performance, using the 1990 Workplace Industrial Relations Survey. The estimates indicate that bargaining over redundancy pay is more prevalent in plants with a strong union presence. However, voluntary negotiation of redundancy pay does not appear to reduce employment variability in the face of small demand shocks. Bargaining over manual redundancy pay has an insignificant impact on plants' financial performance, while bargaining over non-manual redundancy pay has a large significant positive effect. Our findings may explain the positive attitudes to redundancy pay reported by some employers, and reinforce the general conclusion of cross-country studies that firing constraints in Britain may be relatively unimportant in preventing labour market flexibility.