Hiring And Firing Costs, Adverse Selection And The Persistence Of Unemployment
AbstractIn this paper, we present a matching model with adverse selection that explains why flows into and out of unemployment are much lower in Europe compared to North America, while employment-to-employment flows are similar in the two continents. In the model, firms use discretion in terms of whom to fire and, thus, low quality workers are more likely to be dismissed than high quality workers. Moreover, as hiring and firing costs increase, firms find it more costly to hire a bad worker and, thus, they prefer to hire out of the pool of employed job seekers rather than out of the pool of the unemployed, who are more likely to turn out to be 'lemons'. We use microdata for Spain and the US and find that the ratio of the job finding probability of the unemployed to the job finding probability of employed job seekers was smaller in Spain than in the US. Furthermore, using US data, we find that the discrimination against the unemployed increased over the 1980's in those states that raised firing costs by introducing exceptions to the employment-at-will doctrine.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2410.
Date of creation: Mar 2000
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
- J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- World Bank, 2002. "Labor Market in Postwar Bosnia and Herzegovina : How to Encourage Businesses to Create Jobs and Increase Worker Mobility," World Bank Other Operational Studies 15333, The World Bank.
- Eriksson, Stefan, 2002. "Imperfect information, wage formation, and the employability of the unemployed," Working Paper Series 2002:17, IFAU - Institute for Evaluation of Labour Market and Education Policy.
- Pekka Ilmakunnas & Mika Maliranta, 2004. "Hiring from unemployment and separation to unemployment," Applied Economics Letters, Taylor & Francis Journals, vol. 11(2), pages 91-95.
- Vodopivec, Milan & Raju, Dhushyanth, 2002. "Income support systems for the unemployed : issues and options," Social Protection Discussion Papers 25529, The World Bank.
- Daniel, Kirsten & Siebert, W. Stanley, 2004.
"Does Employment Protection Reduce the Demand for Unskilled Labor?,"
IZA Discussion Papers
1290, Institute for the Study of Labor (IZA).
- Kirsten Daniel & W. S. Siebert, 2005. "Does employment protection reduce the demand for unskilled labour?," International Economic Journal, Taylor & Francis Journals, vol. 19(2), pages 197-222.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.