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Age-Dependent Employment Protection

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Author Info

  • Chéron, Arnaud

    ()
    (University of Le Mans)

  • Hairault, Jean-Olivier

    ()
    (University of Paris 1 Panthéon-Sorbonne)

  • Langot, François

    ()
    (University of Le Mans)

Abstract

This paper examines the age-related design of firing taxes by extending the theory of job creation and job destruction to account for a finite working life-time. We first argue that the potential employment gains related to employment protection are high for older workers, but higher firing taxes for these workers increase job destruction rates for the younger generations. On the other hand, age-decreasing firing taxes can lead to lower job destruction rates at all ages. Furthermore, from a normative standpoint, because firings of older (younger) workers exert a negative (positive) externality on the matching process, we find that the first best age-dynamic of firing taxes and hiring subsidies is typically hump-shaped. Taking into account distortions related to unemployment benefits and bargaining power shows the robustness of this result, in contradiction with the existing policies in most OECD countries.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3851.

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Length: 28 pages
Date of creation: Nov 2008
Date of revision:
Publication status: published in: Economic Journal, 2011, 121 (557), 1477-1504
Handle: RePEc:iza:izadps:dp3851

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  1. Alesina, Alberto F & Ichino, Andrea & Karabarbounis, Loukas, 2007. "Gender Based Taxation and the Division of Family Chores," CEPR Discussion Papers 6591, C.E.P.R. Discussion Papers.
  2. Behaghel, Luc & Crépon, Bruno & Sédillot, Béatrice, 2008. "The perverse effects of partial employment protection reform: The case of French older workers," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 696-721, April.
  3. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  4. David Neumark, 2003. "Age Discrimination Legislation in the United States," Contemporary Economic Policy, Western Economic Association International, vol. 21(3), pages 297-317, 07.
  5. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  6. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
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