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Employment Protection: The Case of Limited Enforceability

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Author Info
Florian Baumann ()
Abstract

This paper shows that the effects of employment protection critically depend on its enforcement. For this purpose, we capture evasion of employment protection via market exit in a setting of monopolistic competition. We find that the number of firms entering the market depends on firing costs only in the case of imperfect enforcement of employment protection. Furthermore, the possibility to circumvent firing restrictions by exiting the market mitigates the adverse efficiency effects of employment protection and can reverse the sign of the change in employment associated with an increase in firing costs.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2346.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2346

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Related research
Keywords: employment protection; evasion; market entry and exit;

Find related papers by JEL classification:
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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  1. Samaniego, Roberto M., 2006. "Do Firing Costs Affect The Incidence Of Firm Bankruptcy?," Macroeconomic Dynamics, Cambridge University Press, vol. 10(04), pages 467-501, September. [Downloadable!]
  2. Bertola, Giuseppe, 1994. "Flexibility, investment, and growth," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 215-238, October. [Downloadable!] (restricted)
    Other versions:
  3. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects Of Regulation And Deregulation In Goods And Labor Markets," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 879-907, August. [Downloadable!] (restricted)
    Other versions:
  4. Monique Ebell & Christian Haefke, 2002. "Product Market Deregulation and Labor Market Outcomes," Economics Working Papers 726, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2003. [Downloadable!]
    Other versions:
  5. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Michael Neugart & Donald Storrie, 2006. "The emergence of temporary work agencies," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 137-156, January. [Downloadable!] (restricted)
  7. Boeri, Tito, 1999. "Enforcement of employment security regulations, on-the-job search and unemployment duration," European Economic Review, Elsevier, vol. 43(1), pages 65-89, January. [Downloadable!] (restricted)
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  8. Amable, Bruno & Gatti, Donatella, 2004. "Labour and Product Market Reforms: A Case for Policy Complementarity," IZA Discussion Papers 1190, Institute for the Study of Labor (IZA). [Downloadable!]
  9. E. Galdon-Sanchez, Jose & Guell, Maia, 2003. "Dismissal conflicts and unemployment," European Economic Review, Elsevier, vol. 47(2), pages 323-335, April. [Downloadable!] (restricted)
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  10. Olivier Blanchard & Pedro Portugal, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March. [Downloadable!] (restricted)
  11. Richard Martin & Steeve Mongrain & Sean Parkinson, 2004. "Severance Payments and Unemployment Insurance: A Commitment Issue," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(4), pages 593-606, October. [Downloadable!] (restricted)
  12. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  13. Burda, Michael C., 1991. "Monopolistic competition, costs of adjustment, and the behavior of European manufacturing employment," European Economic Review, Elsevier, vol. 35(1), pages 61-79, January. [Downloadable!] (restricted)
  14. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November. [Downloadable!] (restricted)
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