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Deposit-Refundon Labor: A Solution to Equilibrium Unemployment?

Author

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  • Mr. Ben J. Heijdra
  • Ms. Jenny E Ligthart

Abstract

The paper studies the employment effects of a deposit-refund scheme on labor in a simple search-theoretic model of the labor market. It is shown that if a firm pays a deposit to the government when it fires a worker, to be refunded when it employs the same or another worker, the vacancy rate increases and the unemployment rate declines. However, the scheme introduces rigidities in the labor market that may be undesirable in countries wanting to liberalize their labor markets.

Suggested Citation

  • Mr. Ben J. Heijdra & Ms. Jenny E Ligthart, 2000. "Deposit-Refundon Labor: A Solution to Equilibrium Unemployment?," IMF Working Papers 2000/009, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2000/009
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    Keywords

    WP; labor market; deposit-refund schemes; firing costs; hiring subsidies; job search; unemployment; A. firm behavior; firm-worker pairing; co-state variable; restructuring firm; rents physical capital; Labor markets; Employment; Wages;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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