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Dual employment protection legislation: a framework for analysis

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Author Info
Juan J. Dolado () (Universidad Carlos III de Madrid)
Marcel Jansen () (Universidad Carlos III de Madrid)
Juan F. Jimeno () (Banco de España)

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Abstract

In many countries, Employment Protection Legislation (EPL) establishes different regulations for certain groups of workers who face more disadvantages in the labor market (young workers, women, unskilled workers, etc.) with the aim of improving their employability. Well known examples are the introduction of atypical employment contracts (e.g., temporary and determined duration contracts) which ease firing restrictions for some, but not all, workers. This paper discusses the effects of EPL varying among workers of different skills on the level and composition of unemployment, job flows, productivity and welfare. By using an extension of Mortensen Pissarides' (1994) search model where heterogeneous workers compete for the same jobs, we are able to identify several key channels through which changing firing costs for some groups of workers affects hiring and firing of all workers and, hence, may have a different impact on aggregate labor market variables than reducing firing costs across the board. Some analytical and simulation results also show that these effects of differentiated firing costs by workers' skills may be different depending upon the initial state of the labor market.

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File URL: http://www.bde.es/informes/be/docs/dt0510e.pdf
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Publisher Info
Paper provided by Banco de España in its series Banco de España Working Papers with number 0510.

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Length: 45 pages
Date of creation: May 2005
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Handle: RePEc:bde:wpaper:0510

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Related research
Keywords: firing costs matching unemployment

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Find related papers by JEL classification:
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier. [Downloadable!] (restricted)
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  2. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, . "On-the-Job Search in a Matching Model with Heterogenous Jobs and Workers," Working Papers 2003-21, FEDEA. [Downloadable!]
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  3. Belot, M. & Boone, J. & Ours, J. C. van, 2002. "Welfare effects of employment protection," Discussion Paper 48, Tilburg University, Center for Economic Research. [Downloadable!]
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  4. Cahuc, Pierre & Postel-Vinay, Fabien, 2002. "Temporary jobs, employment protection and labor market performance," Labour Economics, Elsevier, vol. 9(1), pages 63-91, February. [Downloadable!] (restricted)
  5. Camacho, Maximo & Pérez-Quirós, Gabriel, 2005. "Jump-and-Rest Effects of US Business Cycles," CEPR Discussion Papers 4975, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. David Naumark & William Wascher, 2003. "Minimum wages, labor market institutions, and youth employment: a cross-national analysis," Finance and Economics Discussion Series 2003-23, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  7. Burda, Michael C, 1992. " A Note on Firing Costs and Severance Benefits in Equilibrium Unemployment," Scandinavian Journal of Economics, Blackwell Publishing, vol. 94(3), pages 479-89.
  8. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February. [Downloadable!] (restricted)
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  9. Javier Andres & J. David L¢pez-Salido & Edward Nelson, 2004. "Tobin's imperfect asset substitution in optimizing general equilibrium," Working Papers 2004-003, Federal Reserve Bank of St. Louis. [Downloadable!]
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  10. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Juan J Dolado & Carlos Garcia--Serrano & Juan F. Jimeno, 2002. "Drawing Lessons From The Boom Of Temporary Jobs In Spain," Economic Journal, Royal Economic Society, vol. 112(721), pages F270-F295, June. [Downloadable!] (restricted)
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  12. Olivier Blanchard & Augustin Landier, 2001. "The Perverse Effects of Partial Labor Market Reform: Fixed Duration Contracts in France," NBER Working Papers 8219, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Diego Rodriguez-Palenzuela & Juan Francisco Jimeno-Serrano, 2002. "Youth unemployment in the OECD: demographic shifts; labour market institutions, and macroeconomic shock," Working Paper Series 155, European Central Bank. [Downloadable!]
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  14. Wouter J. den Haan & Garey Ramey & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June. [Downloadable!] (restricted)
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  15. Dreze, Jacques H. & Malinvaud, Edmond, 1994. "Growth and employment: The scope of a European initiative," European Economic Review, Elsevier, vol. 38(3-4), pages 489-504, April. [Downloadable!] (restricted)
  16. Tito Boeri & Juan F. Jimeno, . "The Effects of Employment Protection: Learning from Variable Enforcement," Working Papers 252, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  17. Robert-Paul Berben & Alberto Locarno & Julian Morgan & Javier Valles, 2004. "Cross-country differences in monetary policy transmission," Working Paper Series 400, European Central Bank. [Downloadable!]
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  18. Lars Ljungqvist, 2002. "How Do Lay--off Costs Affect Employment?," Economic Journal, Royal Economic Society, vol. 112(482), pages 829-853, October. [Downloadable!] (restricted)
  19. Hernanz, Virginia & Jimeno, Juan Francisco & Kugler, Adriana D., 2003. "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labour Market Reforms," CEPR Discussion Papers 3724, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  20. Acemoglu, D, 1996. "Good Jobs Versus Bad Jobs : Theory and Some Evidence," Working papers 96-33, Massachusetts Institute of Technology (MIT), Department of Economics.
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  21. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 397-415, July. [Downloadable!] (restricted)
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  22. Giuseppe Bertola & Francine D. Blau & Lawrence M. Kahn, 2002. "Labor Market Institutions and Demographic Employment Patterns," NBER Working Papers 9043, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Agustín Maravall, 2005. "An application of the Tramo Seats automatic procedure; direct versus indirect adjustment," Banco de España Working Papers 0524, Banco de España. [Downloadable!]
  2. José Ignacio García Pérez & Yolanda Rebollo Sanz, 2005. "The use of permanent and temporary jobs across Spanish regions: Do unit labour cost differentials offer an explanation?," Economic Working Papers at Centro de Estudios Andaluces E2005/16, Centro de Estudios Andaluces. [Downloadable!]
    Other versions:
  3. Arnaud Dupuy & Daniel Fernández-Kranz, 2007. "International Differences in the Family Gap in Pay: The Role of Labor Market Institutions," IZA Discussion Papers 2719, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Jian-Ping Zhou, 2006. "Reforming Employment Protection Legislation in France," IMF Working Papers 06/108, International Monetary Fund. [Downloadable!]
  5. James Albrecht & Lucas Navarro & Susan Vroman, 2006. "The Effects of Labor Market Policies in an Economy with an Informal Sector," IZA Discussion Papers 2141, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Luis J. Álvarez & Pablo Burriel & Ignacio Hernando, 2005. "Price setting behaviour in Spain: evidence from micro PPI data," Banco de España Working Papers 0527, Banco de España. [Downloadable!]
  7. Julián Messina & Giovanna Vallanti, 2006. "Job flow dynamics and firing restrictions - evidence from Europe," Working Paper Series 602, European Central Bank. [Downloadable!]
    Other versions:
  8. Óscar J. Arce & David López-Salido, 2006. "House Prices, Rents, and Interest Rates under Collateral Constraints," Banco de España Working Papers 0610, Banco de España. [Downloadable!]
  9. Ana del Río & Garry Young, 2005. "The determinants of unsecured borrowing: evidence from the British household panel survey," Banco de España Working Papers 0511, Banco de España. [Downloadable!]
    Other versions:
  10. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, 2007. "A Positive Analysis of Targeted Employment Protection Legislation," IZA Discussion Papers 2679, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  11. Francisco de Castro & Pablo Hernández de Cos, 2006. "The economic effects of exogenous fiscal shocks in Spain: a SVAR approach," Banco de España Working Papers 0604, Banco de España. [Downloadable!]
  12. Gabriel Jiménez & Vicente Salas-Fumás & Jesús Saurina, 2006. "Credit market competition, collateral and firms' finance," Banco de España Working Papers 0612, Banco de España. [Downloadable!]
  13. Ana del Río & Garry Young, 2005. "The impact of unsecured debt on financial distress among British households," Banco de España Working Papers 0512, Banco de España. [Downloadable!]
    Other versions:
  14. Paloma López-García & Sergio Puente, 2006. "Business demography in Spain: determinants of firm survival," Banco de España Working Papers 0608, Banco de España. [Downloadable!]
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