This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Labor Market Performance and Flexibility: Which Comes First?

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Enrico Saltari (University of Rome La Sapienza. Italy)
Riccardo Tilli (University of Rome La Sapienza. Italy)
Abstract

We use a matching framework to explore the hypothesis that firing costs are a decreasing function of labor market tightness. Conventional wisdom suggests that differences in employment protection legislation (EPL) cause differences in labor market performance. Our hypothesis suggests a reverse causality nexus: it is labor market tightness which causes labor market rigidities. The endogeneity of firing costs produces a positive externality. We show that if this externality offsets the standard search externality, the model generates multiple equilibria. which reflect a trade off between wage moderation and the strictness of EPL. We demonstrate that the equilibria are not Pareto ranked. The analysis of local stability shows that, when firing costs externality offsets the search cost externality, the equilibrium is a stable node; vice versa, the equilibrium is an unstable saddle point. Finally, we investigate the question of social efficiency, obtaining a generalization of the Hosios (1990) condition.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1174&context=bejm
File Format: application/pdf
File Function:
Download Restriction: Subscription to the journal may be required to access full texts.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Article provided by Berkeley Electronic Press in its journal Topics in Macroeconomics.

Volume (Year): 4 (2004)
Issue (Month): 1 ()
Pages: 1174-1174
Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Handle: RePEc:bep:mactop:v:4:y:2004:i:1:p:1174-1174

Note: oai:bepress:bejm-1174
Contact details of provider:
Web page: http://www.bepress.com/bejm/topics/

Order Information:
Web: http://www.bepress.com/subscriptions.html

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords: Matching Models Firing Costs Multiple Equilibria

Find related papers by JEL classification:
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
  2. Saint-Paul, Gilles, 1995. "The High Unemployment Trap," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 527-50, May. [Downloadable!] (restricted)
    Other versions:
  3. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August. [Downloadable!] (restricted)
  4. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Olivier Blanchard & Pedro Portugal, 1998. "What Hides Behind an Umemployment Rate: Comparing Portuguese and U.S. Unemployment," NBER Working Papers 6636, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Maia Guell, 2000. "Employment Protection and Unemployment in an Efficiency Wage Model," Working Papers 811, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
    Other versions:
  7. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003. "Are judges biased by labor market conditions?," European Economic Review, Elsevier, vol. 47(5), pages 913-944, October. [Downloadable!] (restricted)
    Other versions:
  8. Barbara Petrongolo & Christopher A. Pissarides, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June. [Downloadable!] (restricted)
    Other versions:
  9. repec:fth:prinin:432 is not listed on IDEAS
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Enrio Saltari & Riccardo Tilli, 2005. "Endogenous Firing Costs and Labor Market Equilibrium," Working Papers 89, University of Rome La Sapienza, Department of Public Economics. [Downloadable!]
  2. Riccardo Tilli & Enrico Saltari, 2008. "Do labor market conditions affect the strictness of employment protection legislation?," Economics Bulletin, Economics Bulletin, vol. 10(4), pages 1-9. [Downloadable!]
Statistics
Access and download statistics

Did you know? Authors registered on the RePEc Author Service receive monthly emails with details about downloads and abstract views of their works.

This page was last updated on 2008-11-13.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.