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Flexibility at the margin and labor market volatility in OECD countries

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  • Hector Sala

    ()

  • Jose I. Silva

    ()

  • Manuel E. Toledo

    ()

Abstract

We argue that segmented labor markets with flexibility at the margin (e.g., just affecting fixed-term employees) may achieve similar volatility than fully deregulated labor markets. Flexibility at the margin produces a gap in separation costs among matched workers that cause fixed-term employment to be the main workforce adjustment device. Moreover, in the presence of limitations in the duration and number of renewals of fixed-term contracts, firms respond by fostering labor turnover which further raises the volatility of the labor market. We present a matching model with temporary and permanent jobs where (i) the gap in firing costs and (ii) restrictions in the use of fixedterm contracts play the central role to explain the similar volatility observed in many regulated labor markets with flexibility at the margin vis-à-vis the fully deregulated ones.

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we075832.

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Date of creation: Jul 2007
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Handle: RePEc:cte:werepe:we075832

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Citations

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Cited by:
  1. Samuel Bentolila & Pierre Cahuc & Juan Jose Dolado & Thomas Le Barbanchon, 2010. "Two-Tier Labor Markets in the Great Recession: France vs. Spain," CESifo Working Paper Series 3269, CESifo Group Munich.
  2. Sala, Hector & Trivín, Pedro, 2013. "Labour Market Dynamics in Spanish Regions: Evaluating Asymmetries in Troublesome Times," IZA Discussion Papers 7746, Institute for the Study of Labor (IZA).
  3. Silva, José I. & Toledo, Manuel, 2008. "Separation costs, job heterogeneity and labor market volatility in the matching model," Economics Letters, Elsevier, vol. 101(1), pages 77-79, October.
  4. Cahuc, Pierre & Charlot, Olivier & Malherbet, Franck, 2012. "Explaining the Spread of Temporary Jobs and its Impact on Labor Turnover," CEPR Discussion Papers 8864, C.E.P.R. Discussion Papers.
  5. Olivier Charlot & Franck Malherbert, 2010. "Education and the Welfare Gains from Employment Protection," Cahiers de recherche 1012, CIRPEE.
  6. José I. Silva & Javier Vázquez-Grenno, 2012. "The ins and outs of unemployment in a two-tier labor market," Working Papers 2012/17, Institut d'Economia de Barcelona (IEB).
  7. Bosio, Giulio, 2008. "Labour market transition in Italy: an empirical investigation," MPRA Paper 18901, University Library of Munich, Germany.
  8. Carlos Gradín & Olga Cantó & Coral del Río, 2012. "Unemployment and Spell Duration during the Great Recession in the EU," Working Papers 1205, Universidade de Vigo, Departamento de Economía Aplicada.
  9. Gete, Pedro & Porchia, Paolo, 2011. "A real options analysis of dual labor markets and the single labor contract," MPRA Paper 34055, University Library of Munich, Germany.
  10. C. Giannetti & M. Madia & L. Moretti, 2013. "Job Insecurity and Financial Distress," Working Papers wp887, Dipartimento Scienze Economiche, Universita' di Bologna.
  11. Charlot, Olivier & Malherbet, Franck, 2013. "Education and employment protection," Labour Economics, Elsevier, vol. 20(C), pages 3-23.
  12. Samuel Bentolila & Pierre Cahuc & Juan José Dolado & Thomas Le Barbanchon, ., 2010. "Unemployment and Temporary Jobs in the Crisis: Comparing France and Spain," Working Papers 2010-07, FEDEA.
  13. Héctor Sala & José I. Silva, 2009. "Flexibility at the margin and labour market volatility: The case of Spain," Investigaciones Economicas, Fundación SEPI, vol. 33(2), pages 145-178, May.
  14. Pedro Gete and Paolo Porchia, 2011. "A Real Options Analysis of Dual Labor Markets and the Single Labor Contract," Working Papers gueconwpa~11-11-02, Georgetown University, Department of Economics.
  15. Dario JUDZIK & Hector SALA, 2013. "Productivity, deunionization and trade: Wage effects and labour share implications," International Labour Review, International Labour Organization, vol. 152(2), pages 205-236, 06.
  16. Ekkehard Ernst & Uma Rani, 2011. "Understanding unemployment flows," Oxford Review of Economic Policy, Oxford University Press, vol. 27(2), pages 268-294.

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