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Transitions into Unemployment and the Nature of Firing Costs

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  • Alain Delacroix

    (Purdue University)

Abstract

We study the effects of firing taxes on labor market outcomes. These taxes, more common in European markets, include all administrative and procedural costs incurred by the firm. As such, they are independent of the dismissed worker's skill level. We establish that, for young workers, unemployment incidence increases with skill in high-firing-tax countries, while the opposite holds in economies with low firing taxes. The model is able to replicate these observations, while maintaining unemployment duration and the unemployment rate as decreasing functions of skill in all countries. Because of constant firing taxes, the effective tax rate diminishes with skill. Hence, the size of job destruction costs decreases with skill. Also, high-skill vacancies are more profitable, implying tighter markets. These two reasons generate the skill-incidence pattern. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 6 (2003)
Issue (Month): 3 (July)
Pages: 651-671

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Handle: RePEc:red:issued:v:6:y:2003:i:3:p:651-671

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Related research

Keywords: Matching models; Firing costs; Unemployment; Job tenure; Wage profile;

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References

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  1. Garibaldi, Pietro, 1998. "Job flow dynamics and firing restrictions," European Economic Review, Elsevier, Elsevier, vol. 42(2), pages 245-275, February.
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Citations

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Cited by:
  1. repec:spo:wpecon:info:hdl:2441/9938 is not listed on IDEAS
  2. George Alessandria & Alain Delacroix, 2004. "Trade and the (dis)incentive to reform labor markets: the case of reform in the European Union," Working Papers 04-18, Federal Reserve Bank of Philadelphia.
  3. Jens Rubart, 2006. "Dismissal Protection or Wage Flexibility," Computing in Economics and Finance 2006, Society for Computational Economics 406, Society for Computational Economics.
  4. Olsson, Martin, 2013. "Employment Protection and Parental Child Care," Working Paper Series, Research Institute of Industrial Economics 952, Research Institute of Industrial Economics.
  5. Alain Delacroix, 2000. "Matching Between Heterogeneous Workers and Firms," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1523, Econometric Society.
  6. Wesselbaum, Dennis, 2009. "Firing Tax vs. Severance Payment - An Unequal Comparison," MPRA Paper 17637, University Library of Munich, Germany.
  7. Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
  8. Steffen Ahrens & Dennis Wesselbaum, 2009. "On the Introduction of Firing Costs," Kiel Working Papers 1559, Kiel Institute for the World Economy.
  9. Vasileios Gkionakis, 2004. "Short job tenures and firing taxes in the search theory of unemployment," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19964, London School of Economics and Political Science, LSE Library.
  10. Vasileios Gkionakis, 2004. "Short Job Tenures and Firing Taxes in the Search Theory of Unemployment," CEP Discussion Papers, Centre for Economic Performance, LSE dp0628, Centre for Economic Performance, LSE.
  11. Alain Delacroix & Etienne Wasmer, 2007. "Job and Workers Flows in Europe and the US: Specific Skills or Employment Protection?," Sciences Po publications, Sciences Po info:hdl:2441/9938, Sciences Po.

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