A Pure Theory of Job Security and Labour Income Risk
AbstractModels of labour market equilibrium where forward-looking decisions maximize both profits and labour income on a risk-neutral basis offer valuable insights into the effects of employment protection legislation. Since risk-neutral behaviour in the labour market presumes perfect insurance, however, job security provisions plays no useful role in such models. This paper studies a stylized model of dynamic labour market interactions where labour reallocation costs are partly financed by uninsured workers' consumption flows. In the resulting second-best equilibrium, provisions that shift labour reallocation costs to risk-neutral employers can increase productive efficiency if their administrative dead-weight costs are not too large, and increase workers' welfare as long as employers' firing costs at least partly finance workers' mobility. Copyright 2004, Wiley-Blackwell.
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Bibliographic InfoArticle provided by Oxford University Press in its journal The Review of Economic Studies.
Volume (Year): 71 (2004)
Issue (Month): 1 ()
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Other versions of this item:
- Giuseppe Bertola, 2004. "A Pure Theory of Job Security and Labour Income Risk," Review of Economic Studies, Wiley Blackwell, vol. 71(1), pages 43-61, 01.
- Bertola, Giuseppe, 2002. "A Pure Theory of Job Security and Labour Income Risk," CEPR Discussion Papers 3430, C.E.P.R. Discussion Papers.
- D30 - Microeconomics - - Distribution - - - General
- D60 - Microeconomics - - Welfare Economics - - - General
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