How Do Firing Costs Affect Worker Flows in a World with Adverse Selection?
AbstractThis article provides theoretical and empirical analyses of a firing costs model with adverse selection. Our theory suggests that, as firing costs increase, firms increasingly prefer hiring employed workers, who are less likely to be lemons. Estimates of re-employment probabilities from the National Longitudinal Survey of Youth support this prediction. Unjust-dismissal provisions in U.S. states reduce the re-employment probabilities of unemployed workers relative to employed workers. Consistent with a lemons story, the relative effects of unjust-dismissal provisions on the unemployed are generally smaller for union workers and those who lost their previous jobs due to the end of a contract.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Labor Economics.
Volume (Year): 22 (2004)
Issue (Month): 3 (July)
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Web page: http://www.journals.uchicago.edu/JOLE/
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