Dismissal costs in Mexico, Argentina and Chile

Some of the major costs firms face, especially in this time of crisis, are the dismissal costs, which can be of various types: i) the period of advance notice when a person quits or is dismissed is considered as cost because the productivity of the workers is almost zero; ii) in some countries a severance payment is givento workers notwithstanding the reason for separation; and iii) there are payment for unjustified dismissal or in some countries for economic reasons.

In the chart below we see the total cost of separation for Mexico, Argentina and Chile in a period of 30 years measured in times the montltly wage. As we can see, Mexico and Argentina have a similar behavior, while Chile is similar during the first 11 years of working, and then remains fixed at 12. The understanding of the effects of the regulation in the dismissal patterns are very important in episodes of crises in order to design public policies that better protect the employment.