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Threshold Effects of Dismissal Protection Regulations and Employment Dynamics

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Author Info
Yu-Fu Chen
Michael Funke

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Abstract

Labour market regulations aimed at enhancing job-security are dominant in several OECD countries. These regulations seek to reduce dismissals of workers and fluctuations in employment. The main theoretical contribution is to gauge the effects of such regulations on labour demand across establishment sizes. In order to achieve this, we investigate an optimising model of labour demand under uncertainty through the application of real option theory. The calibration results indicate that labour market rigidities may be crucial for understanding sluggishness in firms´ labour demand across plant sizes in continental Europe.

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File URL: http://www.dundee.ac.uk/econman/discussion/DDPE_195.pdf
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Publisher Info
Paper provided by University of Dundee, Economic Studies in its series Discussion Papers with number 195.

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Length: 20 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:dun:dpaper:195

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Postal: Dundee, DD1 4HN
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Related research
Keywords: Labour Demand; Dismissal Protection Legislation; Firing Costs; Real Options;

Find related papers by JEL classification:
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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  1. Thomas Bauer & Stefan Bender & Holger Bonin, 2004. "Dismissal Protection and Worker Flows in Small Establishments," RWI Discussion Papers 0014, Rheinisch-Westfälisches Institut für Wirtschaftsforschung. [Downloadable!]
    Other versions:
  2. Ricardo J. Caballero & Kevin N. Cowan & Eduardo M.R.A. Engel & Alejandro Micco, 2004. "Effective Labor Regulation and Microeconomic Flexibility," Cowles Foundation Discussion Papers 1480, Cowles Foundation, Yale University, revised Oct 2006. [Downloadable!]
    Other versions:
  3. Tito Boeri & Juan F. Jimeno, 2003. "The Effects of Employment Protection: Learning from Variable Enforcement," Working Papers 252, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  4. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 381-402, July. [Downloadable!] (restricted)
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    Other versions:
  6. Bertola, Giuseppe, 1992. "Labor Turnover Costs and Average Labor Demand," Journal of Labor Economics, University of Chicago Press, vol. 10(4), pages 389-411, October. [Downloadable!] (restricted)
    Other versions:
  7. Nilsen, Oivind A. & Salvanes, Kjell G. & Schiantarelli, Fabio, 2007. "Employment changes, the structure of adjustment costs, and plant size," European Economic Review, Elsevier, vol. 51(3), pages 577-598, April. [Downloadable!] (restricted)
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  8. Bovenberg, A. Lans & Graafland, Johan J. & de Mooij, Ruud A., 2000. "Tax reform and the Dutch labor market: an applied general equilibrium approach," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 193-214, October. [Downloadable!] (restricted)
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  9. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, 03. [Downloadable!] (restricted)
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  10. Daniel S. Hamermesh, 1995. "Labor Demand and the Source of Adjustment Costs," NBER Working Papers 4394, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Coe, David T & Snower, Dennis J., 1997. "Policy Complementarities: The Case for Fundamental Labour Market Reform," CEPR Discussion Papers 1585, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Pilar Díaz-Vázquez & Dennis J. Snower, 2003. "Can Insider Power Affect Employment?," German Economic Review, Blackwell Publishing, vol. 4(2), pages 139-150, 05. [Downloadable!] (restricted)
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  13. Orszag, J.M. & Snower, D.J., 1998. "Anatomy of Policy Complementarities," Research Institute of Industrial Economics Working Papers 500, Research Institute of Industrial Economics (IFN).
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  14. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(3), pages 691-721.
  15. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May. [Downloadable!] (restricted)
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  17. Julián Messina & Giovanna Vallanti, 2006. "Job flow dynamics and firing restrictions - evidence from Europe," Working Paper Series 602, European Central Bank. [Downloadable!]
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  18. Abowd, John M. & Kramarz, Francis, 2003. "The costs of hiring and separations," Labour Economics, Elsevier, vol. 10(5), pages 499-530, October. [Downloadable!] (restricted)
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  19. Juan Botero & Simeon Djankov & Rafael Porta & Florencio C. Lopez-De-Silanes, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, MIT Press, vol. 119(4), pages 1339-1382, November. [Downloadable!] (restricted)
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    • Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  20. Leahy, John V, 1993. "Investment in Competitive Equilibrium: The Optimality of Myopic Behavior," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 1105-33, November. [Downloadable!] (restricted)
  21. Yu-Fu Chen & Michael Funke, 2004. "Working Time and Employment under Uncertainty," Quantitative Macroeconomics Working Papers 20409, Hamburg University, Department of Economics. [Downloadable!]
    Other versions:
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