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Does the Market Provide Sufficient Employment Protection?

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  • Burguet, Roberto
  • Caminal, Ramón

Abstract

This Paper examines the role of employment protection when firms learn over time about the value of the match. When parties can commit to future wages, equilibrium contracts stipulate positive severance payments as an instrument to induce efficient lay-off decisions and there is no room for public intervention. When parties cannot commit to future wages, ex-post bargaining leads to excessive dismissals, and therefore the market provides insufficient employment protection. In this case, a Pigouvian tax/subsidy scheme will correct the inefficiency by enhancing employment protection.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4198.

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Date of creation: Jan 2004
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Handle: RePEc:cpr:ceprdp:4198

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Keywords: employment protection; experimentation; lay-offs; severance payments;

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References

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  1. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
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  12. Blanchard, Olivier Jean & Tirole, Jean, 2007. "The Optimal Design of Unemployment Insurance and Employment Protection: A First Pass," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
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Cited by:
  1. Burguet, Roberto & Caminal, Ramon, 2008. "Does the market provide sufficient employment protection?," Labour Economics, Elsevier, vol. 15(3), pages 406-422, June.
  2. Steffen Ahrens & Dennis Wesselbaum, 2009. "On the Introduction of Firing Costs," Kiel Working Papers 1559, Kiel Institute for the World Economy.

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