Quitting Externalities, Employment Cyclicality and Firing Costs
AbstractThis paper derives a model in which workers have firm-specific and industry-specific skills, and in each period there is a non-zero probability that a worker quits. This makes the private discount factor, used by firms in making decisions about hiring and training new workers and firing existing ones, higher than the social one. As a consequence, not only do firms underinvest in training but employment becomes too cyclical. Firms are too quick to dispose of their human capital in a cyclical downturn because it is of less value to them than it is to society. This provides a rationale for state-mandated redundancy payments as a second-best remedy to overcome the market failure.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1101.
Date of creation: Dec 1994
Date of revision:
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Other versions of this item:
- Booth, Alison L. & Zoega, Gylfi, 1995. "Quitting externalities, employment cyclicality and firing costs," ISER Working Paper Series 95-09, Institute for Social and Economic Research.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
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- Yu-Fu Chen & Dennis Snower & Gylfi Zoega, 2003.
"Labour-market Institutions and Macroeconomic Shocks,"
CEIS, vol. 17(2), pages 247-270, 06.
- Chen, Yu-Fu & Snower, Dennis J. & Zoega, Gylfi, 2002. "Labour-Market Institutions and Macroeconomic Shocks," IZA Discussion Papers 539, Institute for the Study of Labor (IZA).
- Yu-Fu Chen & Dennis Snower & Gylfi Zoega, 2001. "Labour Market Institutions and Macroeconomic Shocks," Dundee Discussion Papers in Economics 123, Economic Studies, University of Dundee.
- Chen, Yu-Fu & Snower, Dennis J. & Zoega, Gylfi, 2002. "Labour Market Institutions and Macroeconomic Shocks," CEPR Discussion Papers 3480, C.E.P.R. Discussion Papers.
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