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According to French law, employers have to pay at least six monthly salary to employees whose
seniority exceeds two years in case of unfair dismissal. We show, relying on data, that this regulation
entails a hike in severance payments at two-year seniority which induces a significant rise in the
job separation rate before the two-year threshold and a drop just after. The layoff costs and its
procedural component are evaluated thanks to the estimation of a search and matching model
which reproduces the shape of the job separation rate. We find that total layoff costs increase with
seniority and are about four times higher than the expected severance payments at two years of
seniority. Counterfactual exercises show that the fragility of low-seniority jobs implies that layoff
costs reduce the average job duration and increase unemployment for a wide set of empirically
relevant parameters.
