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Employment protection reform in search economies

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  • L'Haridon, Olivier
  • Malherbet, Franck

Abstract

The design of employment protection legislation (EPL) is of particular importance in the European debate on the contours of labor-market reform. In this article we appeal to an equilibrium unemployment model to investigate the virtues of EPL reform which reduces the red tape and legal costs associated with layoffs and introduces a U.S.-style experience-rating system, which we model as a combination of a layoff tax and a payroll subsidy. The reform considered shows that it is possible to improve the efficiency of employment protection policies without affecting the extent of worker protection on the labor market. These results are consistent with the conventional wisdom that experience rating is desirable, not only as an integral component of unemployment-compensation finance, as most studies acknowledge, but also as part and parcel of a virtuous EPL system.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 53 (2009)
Issue (Month): 3 (April)
Pages: 255-273

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Handle: RePEc:eee:eecrev:v:53:y:2009:i:3:p:255-273

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Search and matching models Employment protection State-contingent layoff tax Experience rating;

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References

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Citations

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Cited by:
  1. Julien Albertini & Xavier Fairise, 2009. "Search frictions, real wage rigidities and theoptimal design of unemployment insurance: a study in a DSGE framework," Documents de recherche 09-03, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  2. Cahuc, Pierre & Charlot, Olivier & Malherbet, Franck, 2012. "Explaining the Spread of Temporary Jobs and its Impact on Labor Turnover," IZA Discussion Papers 6365, Institute for the Study of Labor (IZA).
  3. Samuel Bentolila & Pierre Cahuc & Juan José Dolado & Thomas Le Barbanchon, ., 2010. "Unemployment and Temporary Jobs in the Crisis: Comparing France and Spain," Working Papers 2010-07, FEDEA.
  4. Julien Albertini & Xavier Fairise, 2013. "Search frictions, real wage rigidities and the optimal design of unemployment insurance," Working Papers halshs-00870055, HAL.
  5. Damien Besancenot & Radu Vranceanu, 2008. "Multiple equilibria in a firing game with impartial justice," CEPN Working Papers halshs-00203176, HAL.
  6. Steffen Ahrens & Dennis Wesselbaum, 2009. "On the Introduction of Firing Costs," Kiel Working Papers 1559, Kiel Institute for the World Economy.
  7. Saltari, Enrico & Tilli, Riccardo, 2009. "The role and significance of endogenous firing costs in a matching model with endogenous job destruction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(5), pages 799-808, October.
  8. Damien Besancenot & Radu Vranceanu, 2008. "Multiple equilibria in a firing game with impartial justice," Working Papers halshs-00203176, HAL.
  9. Bentolila, Samuel & Cahuc, Pierre & Dolado, Juan J. & Le Barbanchon, Thomas, 2010. "Two-Tier Labor Markets in the Great Recession: France vs. Spain," CEPR Discussion Papers 8152, C.E.P.R. Discussion Papers.
  10. Andrey Launov & Klaus Wälde, 2013. "Thumbscrews for Agencies or for Individuals? How to Reduce Unemployment," Working Papers 1307, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 01 Sep 2013.
  11. Ratner, David, 2013. "Unemployment Insurance Experience Rating and Labor Market Dynamics," Finance and Economics Discussion Series 2013-86, Board of Governors of the Federal Reserve System (U.S.).
  12. Jean-Baptiste Michau, 2012. "Optimal labor market policy with search frictions and risk-averse workers," Working Papers hal-00757173, HAL.
  13. Dennis Wesselbaum, 2009. "Firing Costs in a New Keynesian Model with Endogenous Separations," Kiel Working Papers 1550, Kiel Institute for the World Economy.
  14. Julien Albertini & Xavier Fairise, 2009. "Optimal unemployment benefit financing scheme : A transatlantic comparison," Documents de recherche 09-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.

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