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Short Job Tenures and Firing Taxes in the Search Theory of Unemployment

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  • Vasileios Gkionakis

Abstract

This paper studies the effects of firing taxes on the job destruction rate, when probationperiod - or temporary contract - policies are implemented in an otherwise exogenous jobseparation search model. It is shown that contrary to conventional wisdom, firing taxescan amplify the job turnover rate by providing incentives to destroy surviving matches atthe end of the probation period. Moreover, low skill workers are shown to be moreseverely affected while wage inequality across different productivity groups mayincrease.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0628.

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Date of creation: Apr 2004
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Handle: RePEc:cep:cepdps:dp0628

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: Labor market policies; Firing taxes; Probation period; Temporary contracts; Unemployment;

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  1. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
  2. Mortensen, Dale T & Pissarides, Christopher, 2001. "Taxes, Subsidies and Equilibrium Labour Market Outcomes," CEPR Discussion Papers 2989, C.E.P.R. Discussion Papers.
  3. Pietro Garibaldi & Giovanni L. Violante, 2005. "The Employment Effects of Severance Payments with Wage Rigidities," Economic Journal, Royal Economic Society, vol. 115(506), pages 799-832, October.
  4. Dale T. Mortensen, 1978. "Specific Capital and Labor Turnover," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 572-586, Autumn.
  5. Jane Friesen, 1996. "The response of wages to protective labor legislation: Evidence from Canada," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 49(2), pages 243-255, January.
  6. Alain Delacroix, 2003. "Transitions into Unemployment and the Nature of Firing Costs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 651-671, July.
  7. David Metcalf & S Milner & G Nombela, 1995. "Employment Protection Legislation and Labour Market Outcomes in Spain," CEP Discussion Papers dp0244, Centre for Economic Performance, LSE.
  8. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-90, September.
  9. Maia Guell, 2000. "Fixed-term contracts and unemployment: an efficiency wage analysis," LSE Research Online Documents on Economics 20181, London School of Economics and Political Science, LSE Library.
  10. Devine, Theresa J. & Kiefer, Nicolas M., 1991. "Empirical Labor Economics: The Search Approach," OUP Catalogue, Oxford University Press, number 9780195059366, September.
  11. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
  12. Giuseppe BERTOLA & Tito BOERI & Sandrine CAZES, 2000. "Employment protection in industrialized countries: The case for new indicators," International Labour Review, International Labour Organization, vol. 139(1), pages 57-72, 03.
  13. Pissarides, C A, 1984. "Efficient Job Rejection," Economic Journal, Royal Economic Society, vol. 94(376a), pages 97-108, Supplemen.
  14. Dale T. Mortensen, 1994. "Reducing supply-side disincentives to job creation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Jan, pages 189-237.
  15. Abowd, John M & Zellner, Arnold, 1985. "Estimating Gross Labor-Force Flows," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 254-83, June.
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