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Labor Market Frictions, Job Insecurity and the Flexibility of the Employment Relationship

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  • Fred Robert-Nicoud (University of Geneva)
  • Niko Matouschek
  • Paolo Ramezzana (University of Virginia)

Abstract

We analyze a search model of the labor market in which firms and workers meet bilaterally and negotiate over wages in the presence of private information. We show that a fall in labor market frictions induces more aggressive wage bargaining behavior which in turn leads to a costly increase in job insecurity. This adverse insecurity effect can be so large that firms and workers who are in an employment relationship can be made worse off by a fall in labor market frictions. In contrast, firms and workers who are not in an employment relationship and are searching the market for a counterpart are always made better off by such a fall in labor market frictions. We then endogenize the organizational structure of the employment relationship and show that a fall in labor market frictions induces a one off reorganization in which firms and workers switch from a rigid employment relationship to a flexible one. This reorganization leads to a large, one off increase in job insecurity and unemployment

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 52.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:ausm04:52

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Keywords: job insecurity; private information; flexibility of employment relationship;

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  1. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
  2. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  3. Annette Bergemann & Antje Mertens, 2002. "Job Stability Trends, Layoffs and Quits - An Empirical Analysis for West Germany," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C1-4, International Conferences on Panel Data.
  4. Ron Dore, 1996. "The End of Jobs for Life? Corporate Employment Systems: Japan and Elsewhere," CEP Occasional Papers 11, Centre for Economic Performance, LSE.
  5. Leora Friedberg & Anthony Webb, 2003. "Retirement and the Evolution of Pension Structure," NBER Working Papers 9999, National Bureau of Economic Research, Inc.
  6. Robert E. Hall & Edward P. Lazear, 1982. "The Excess Sensitivity of Layoffs and Quits to Demand," NBER Working Papers 0864, National Bureau of Economic Research, Inc.
  7. Kenneth Scheve & Matthew Slaughter, 2002. "Economic Insecurity and the Globalization of Production," NBER Working Papers 9339, National Bureau of Economic Research, Inc.
  8. Lewis Segal & Daniel Sullivan, 1996. "The growth of temporary services work," Working Paper Series, Macroeconomic Issues WP-96-26, Federal Reserve Bank of Chicago.
  9. Williams, Steven R., 1987. "Efficient performance in two agent bargaining," Journal of Economic Theory, Elsevier, vol. 41(1), pages 154-172, February.
  10. Ramey Garey & Watson Joel, 2001. "Bilateral Trade and Opportunism in a Matching Market," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-35, November.
  11. Leora Friedberg & Michael T. Owyang, 2004. "Explaining the evolution of pension structure and job tenure," Working Papers 2002-022, Federal Reserve Bank of St. Louis.
  12. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
  13. repec:wop:humbsf:2001-102 is not listed on IDEAS
  14. Schmidt, Stefanie R, 1999. "Long-Run Trends in Workers' Beliefs about Their Own Job Security: Evidence from the General Social Survey," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages S127-41, October.
  15. Thesmar, David & Thoenig, Mathias, 2002. "Why is a Flexible World More Insecure? The Way Outsourcing Amplifies Uncertainty," CEPR Discussion Papers 3629, C.E.P.R. Discussion Papers.
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