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Do Firing Costs Affect The Incidence Of Firm Bankruptcy?

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  • SAMANIEGO, ROBERTO M.

Abstract

An overlooked topic is the treatment of worker claims when firms are shutting down. In fact, when firms close, worker claims such as severance pay often go unfulfilled. To evaluate the quantitative importance of this observation, this paper develops a general equilibrium model with close attention to the exit margin, and examines how macroeconomic outcomes vary with the treatment of firing costs on exit. In the model, the impact of firing costs on employment weakens by a third when closing plants do not have to pay them, even though closure accounts for considerably less than one-third of total job destruction. Thus, the distribution of firm characteristics is a new channel for labor market rigidities to affect aggregates. The model also accounts for cross-country differences in the relationship between the structure of job flows and firm turnover.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 10 (2006)
Issue (Month): 04 (September)
Pages: 467-501

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Handle: RePEc:cup:macdyn:v:10:y:2006:i:04:p:467-501_05

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Cited by:
  1. Roberto M. Samaniego, 2006. "Employment Protection and High-Tech Aversion," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 224-241, April.
  2. Hernan Moscoso Boedo & Toshihiko Mukoyama, 2012. "Evaluating the effects of entry regulations and firing costs on international income differences," Journal of Economic Growth, Springer, vol. 17(2), pages 143-170, June.
  3. Poschke, Markus, 2009. "Employment protection, firm selection, and growth," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1074-1085, November.
  4. Winfried Koeniger & Julien Prat, 2007. "Employment Protection, Product Market Regulation and Firm Selection," Working Papers 07-03, Utrecht School of Economics.
  5. Roberto M Samaniego, 2003. "Employment Protection, Exit and Macroeconomic Dynamics," Computing in Economics and Finance 2003 28, Society for Computational Economics.
  6. Bart Hobijn & Ayşegül Şahin, 2013. "Firms And Flexibility," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 922-940, 01.
  7. Samaniego, Roberto M., 2006. "Industrial subsidies and technology adoption in general equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1589-1614.
  8. Florian Baumann, 2008. "Employment Protection: The Case of Limited Enforceability," CESifo Working Paper Series 2346, CESifo Group Munich.

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