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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. Leora Friedberg & Anthony Webb, 2003. "Retirement and the Evolution of Pension Structure," NBER Working Papers 9999, National Bureau of Economic Research, Inc.
  2. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2053, C.E.P.R. Discussion Papers.
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  5. repec:wop:humbsf:2001-102 is not listed on IDEAS
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  9. 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, International Conferences on Panel Data C1-4, International Conferences on Panel Data.
  10. 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, University of Chicago Press, vol. 17(4), pages S127-41, October.
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  12. Roger B. Myerson, 1977. "Incentive Compatability and the Bargaining Problem," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 284, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Williams, Steven R., 1987. "Efficient performance in two agent bargaining," Journal of Economic Theory, Elsevier, Elsevier, vol. 41(1), pages 154-172, February.
  14. Ron Dore, 1996. "The End of Jobs for Life? Corporate Employment Systems: Japan and Elsewhere," CEP Occasional Papers, Centre for Economic Performance, LSE 11, Centre for Economic Performance, LSE.
  15. Thesmar, David & Thoenig, Mathias, 2002. "Why is a Flexible World More Insecure? The Way Outsourcing Amplifies Uncertainty," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3629, C.E.P.R. Discussion Papers.
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