Multiple equilibria in a firing game with impartial justice

In this paper, we argue that firms' firing strategies and the judicial strategy of dismissed employees depend to a large extent on labor judges' ability to shed light on the various cases. The model is cast as a sequential game with imperfect information featuring firms, employees and labor judges. The judges' error margin increases with the congestion of the judicial system. The game presents multiple equilibria which differ in the frequency of good workers fired for unfair motives and the frequency of unreliable workers who abusively sue firms for unfair dismissal. The probability that the judge sits with the employee appears to be positively related to the ratio between the severance payment for economic dismissal and the company fine for abusive dismissal.