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Evaluating Labor Market Reforms: A General Equilibrium Approach

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Author Info
Alonso-Borrego, César (Universidad Carlos III de Madrid)
Fernández-Villaverde, Jesús (University of Pennsylvania)
Galdon-Sanchez, José E. (Universidad Publica de Navarra and IZA Bonn)

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Abstract

Job security provisions are commonly invoked to explain the high and persistent European unemployment rates. This belief has led several countries to reform their labor markets and liberalize the use of fixed-term contracts. Despite how common such contracts have become after deregulation, there is a lack of quantitative analysis of their impact on the economy. To fill this gap, we build a general equilibrium model with heterogeneous agents and firing costs in the tradition of Hopenhayn and Rogerson (1993). We calibrate our model to Spanish data, choosing in part parameters estimated with firm-level longitudinal data. Spain is particularly interesting, since its labor regulations are among the most protective in the OECD, and both its unemployment and its share of fixed-term employment are the highest. We find that fixedterm contracts increase unemployment, reduce output, and raise productivity. The welfare effects are ambiguous.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1129.

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Length: 46 pages
Date of creation: Apr 2004
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Handle: RePEc:iza:izadps:dp1129

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Related research
Keywords: fixed-term contracts; firing costs; general equilibrium; heterogeneous agents;

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Güell, Maia & Hu, Luojia, 2003. "Estimating the Probability of Leaving Unemployment Using Uncompleted Spells from Repeated Cross-Section Data," CEPR Discussion Papers 3957, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Renato Faccini, 2008. "Reassessing Labor Market Reforms: Temporary Contracts as a Screening Device," Economics Working Papers ECO2008/27, European University Institute. [Downloadable!]
  3. Fabio Berton & Francesco Devicienti & Lia Pacelli, 2009. "Are Temporary Jobs a Port of Entry into Permanent Employment? Evidence from Matched Employer-Employee Data," Working Papers 6, University of Torino, Department of Economics and Public Finance "G. Prato". [Downloadable!]
  4. Francesco Zanetti, . "Labour market institutions and aggregate fluctuations in a search and matching model," Bank of England working papers 333, Bank of England. [Downloadable!]
  5. Pinoli, Sara, 2007. "Employment Protection and Labor Productivity: Positive or Negative?," MPRA Paper 11775, University Library of Munich, Germany. [Downloadable!]
  6. Fernando Alvarez & Marcelo Veracierto, 2005. "Fixed term employment contracts in an equilibrium search model," Working Paper Series WP-05-14, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  7. Héctor Sala & José I. Silva, 2009. "Flexibility at the margin and labour market volatility: The case of Spain," Investigaciones Economicas, Fundación SEPI, vol. 33(2), pages 145-178, May. [Downloadable!]
  8. Alberto Bayo-Moriones & Jose E. Galdon-Sanchez & Maia Güell, 2004. "Is Seniority-Based Pay Used as a Motivation Device? Evidence from Plant Level Data," CEP Discussion Papers dp0646, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  9. Maia Güell & Barbara Petrongolo, 2003. "How Binding are Legal Limits? Transitions from Temporary to Permanent Work in Spain," Economics Working Papers 682, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2005. [Downloadable!]
    Other versions:
  10. Pinoli, Sara, 2008. "Screening ex-ante or screening on-the-job? The impact of the employment contract," MPRA Paper 11429, University Library of Munich, Germany. [Downloadable!]
  11. Andrea Caggese & Vicente Cuñat, 2006. "Financing Constraints and Fixed-Term Employment Contracts," Economics Working Papers 1010, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  12. Ljungqvist, Lars & Sargent, Thomas J, 2005. "Jobs and Unemployment in Macroeconomic Theory: A Turbulence Laboratory," CEPR Discussion Papers 5340, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Costas Meghir, 2006. "Dynamic models for policy evaluation," IFS Working Papers W06/08, Institute for Fiscal Studies. [Downloadable!]
  14. César Alonso-Borrego & Jesús Fernández-Villaverde & José E. Galdón-Sánchez, 2005. "Evaluating Labor Market Reforms: A General Equilibrium Approach," NBER Working Papers 11519, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Lia Pacelli & Silvia Pasqua & Claudia Villosio, 2008. "What does the stork bring to women's working career?," LABORatorio R. Revelli Working Papers Series 79, LABORatorio R. Revelli, Centre for Employment Studies. [Downloadable!]
    Other versions:
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