Time to Say Goodbye: The Macroeconomic Implications of Termination Notice

Insuring households against unemployment risk is a cornerstone of modern economic policy. Many countries provide unemployment insurance partly by employment protection mandates, most commonly using termination notice mandates. Unlike unemployment insurance benefits, termination notices can stimulate search effort by the unemployed. I formalize this idea using a calibrated heterogeneous agents model, show how termination notice alters the incentives of firms and workers, and study the insurance role of a termination notice in general equilibrium. I demonstrate how termination notice mandates and unemployment insurance benefits are complementary policies. Finally, I also compare termination notice and severance pay. (JEL D31, D52, E24, J23, J64, J65)