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Layoff Costs and Efficiency with Asymmetric Information

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  • Delacroix, Alain

    (University of Québec at Montréal)

  • Wasmer, Etienne

    ()
    (Sciences Po, Paris)

Abstract

Wage determination under asymmetric information generates inefficiencies due to excess turnover. Severance pay and layoff taxes can improve efficiency. We show that inefficient separations can even be fully removed with fixed separation taxes in the case where the relevant private information is exponentially distributed.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4524.

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Length: 12 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4524

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Keywords: bargaining; asymmetric information; employment protection legislation; inefficient job separations;

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  1. Wasmer, Etienne, 2002. "Interpreting Europe and US labor markets differences: the specificity of human capital investments," Arbetsrapport, Institute for Futures Studies 2003:9, Institute for Futures Studies.
  2. 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.
  3. 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.
  4. Alessandria, George & Delacroix, Alain, 2008. "Trade and the (dis)incentive to reform labor markets: The case of reform in the European Union," Journal of International Economics, Elsevier, Elsevier, vol. 75(1), pages 151-166, May.
  5. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, Elsevier, vol. 29(2), pages 265-281, April.
  6. Giulio Fella, 2004. "Optimal severance pay in a matching model," 2004 Meeting Papers 794, Society for Economic Dynamics.
  7. Alvarez, Fernando & Veracierto, Marcelo, 2001. "Severance payments in an economy with frictions," Journal of Monetary Economics, Elsevier, Elsevier, vol. 47(3), pages 477-498, June.
  8. Veracierto, Marcelo, 2001. "Employment Flows, Capital Mobility, and Policy Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 571-95, August.
  9. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
  10. Hall, Robert E & Lazear, Edward P, 1984. "The Excess Sensitivity of Layoffs and Quits to Demand," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 2(2), pages 233-57, April.
  11. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(5), pages 915-38, October.
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