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Threshold Effects of Dismissal Protection Regulation and the Emergence of Temporary Work Agencies

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  • Chen, Yu-Fu
  • Funke, Michael

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. We also consider other forms of employment which increase the flexibility of the labour market. In particular, we are modelling the contribution of temporary employment agencies (Zeitarbeit) allowing for quick personnel adjustments in client firms. The calibration results indicate that labour market rigidities may be crucial for understanding sluggishness in firms´ labour demand and the emergence and growth of temporary work.

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File URL: http://repo.sire.ac.uk/handle/10943/18
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Bibliographic Info

Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2008-05.

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Date of creation: 2008
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Handle: RePEc:edn:sirdps:18

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Related research

Keywords: Labour Demand; Dismissal Protection Legislation; Firing Costs; Real Options; Temporary Work Agencies; Temporary Employment;

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References

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  1. A. Lans Bovenberg & Johan J. Graafland & Ruud A. de Mooij, 1998. "Tax Reform and the Dutch Labor Market: An Applied General Equilibrium Approach," NBER Working Papers 6693, National Bureau of Economic Research, Inc.
  2. Oivind A. Nilsen & Kjell G. Salvanes & Fabio Schiantarelli, 2003. "Employment Changes, the Structure of Adjustment Costs, and Plant Size," Boston College Working Papers in Economics 586, Boston College Department of Economics.
  3. Yu-Fu Chen & Michael Funke, 2002. "Working Time and Employment under Uncertainty," Dundee Discussion Papers in Economics 134, Economic Studies, University of Dundee.
  4. Julián Messina & Giovanna Vallanti, 2006. "Job flow dynamics and firing restrictions - evidence from Europe," Working Paper Series 602, European Central Bank.
  5. Yu-Fu Chen & Michael Funke, 2005. "Product Market Competition, Investment and Employment-Abundant versus Job-Poor Growth: A Real Options Perspective," CESifo Working Paper Series 1563, CESifo Group Munich.
  6. Michael Neugart & Donald Storrie, 2006. "The emergence of temporary work agencies," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 137-156, January.
  7. Roberto M. Samaniego, 2006. "Employment Protection and High-Tech Aversion," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 224-241, April.
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Cited by:
  1. Michael Beckmann & Dieter Kuhn, 2012. "Flexibility vs. screening: The performance effects of temporary agency work strategies," Working papers 2012/03, Faculty of Business and Economics - University of Basel.
  2. Christian Merkl & Tom Schmitz, 2009. "Macroeconomic Volatilities and the Labor Market: First Results from the Euro Experiment," Kiel Working Papers 1511, Kiel Institute for the World Economy.

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