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A Pure Theory of Job Security and Labour Income Risk

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  • Giuseppe Bertola

Abstract

Models of labour market equilibrium where forward-looking decisions maximizeboth profits and labour income on a risk-neutral basis offer valuable insights intothe effects of employment protection legislation. Since risk-neutral behaviourin the labour market presumes perfect insurance, however, job securityprovisions plays no useful role in such models. This paper studies a stylizedmodel of dynamic labour market interactions where labour reallocationcosts are partly financed by uninsured workers' consumption flows. In theresulting second-best equilibrium, provisions that shift labour reallocationcosts to risk-neutral employers can increase productive efficiency if theiradministrative dead-weight costs are not too large, and increase workers' welfareas long as employers' firing costs at least partly finance workers' mobility. Copyright The Review of Economic Studies Limited, 2004.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 71 (2004)
Issue (Month): 1 (01)
Pages: 43-61

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Handle: RePEc:bla:restud:v:71:y:2004:i:1:p:43-61

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  1. Bertola, Giuseppe, 1991. "Labour Turnover Costs and Average Labour Demand," CEPR Discussion Papers 601, C.E.P.R. Discussion Papers.
  2. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 893-928, October.
  3. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1227-62, December.
  4. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  5. Bertola, Giuseppe, 1990. "Flexibility, Investment and Growth," CEPR Discussion Papers 422, C.E.P.R. Discussion Papers.
  6. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
  7. Bertola, Giuseppe, 1999. "Microeconomic perspectives on aggregate labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 45, pages 2985-3028 Elsevier.
  8. Edi Karni, 1999. "Optimal Unemployment Insurance: A Survey," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 442-465, October.
  9. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  10. Fernando Alvarez & Marcel Veracierto, 1998. "Search, self-insurance and job-security provisions," Working Paper Series WP-98-2, Federal Reserve Bank of Chicago.
  11. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  12. Flemming, J. S., 1978. "Aspects of optimal unemployment insurance : Search, leisure, savings and capital market imperfections," Journal of Public Economics, Elsevier, vol. 10(3), pages 403-425, December.
  13. Topel, Robert H, 1986. "Local Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S111-43, June.
  14. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
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