Employment protection and the stock market: the common shock case
AbstractThis paper considers the consequences of employment protection with a fully diversified stock market when firms face a common shock. The analysis focuses on the interaction between employment protection and stock market when wages are sluggish or fixed. We build and calibrate a dynamic model where firms decide upon capital utilization, investment, vacancy posting and lay-offs in order to maximize shareholder value. Public policy, devoted to employment protection, is parametrized through firing costs. Due to the capital and employment irreversibilities, the model has to be solved using numerical techniques. Two series of scenarii are presented, first considering the effect of alternative level of firing costs i a benchmark economy, thus examining interactions between firing cost and successively, i) higher market price of risk, ii) higher separation rates, iii) fixed wages, iv) fixed capital utilization.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 22 (2005)
Issue (Month): 1 (January)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30411
Other versions of this item:
- Hénin, Pierre-Yves & Weitzenblum, Thomas, 2003. "Employment protection and the stock market: The common shock case," CEPREMAP Working Papers (Couverture Orange) 0306, CEPREMAP.
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
- J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
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