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Employment Protection and Labor Productivity: Positive or Negative?

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Author Info
Pinoli, Sara

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Abstract

Since the 1980s, many European countries have implemented labor market reforms, introducing more flexible labor contracts. This paper develops a matching model with heterogeneous matches in order to analyse the impact of employment protection on labor productivity. Several channels affects productivity. On one hand, flexible contracts reduce mismatching: low productive jobs are destroyed at no cost with a positive impact on the overall productivity. On the other hand, they imply lower human capital investment, reducing labor productivity. We analyze a third channel: the selection of the employees. Low costs of dismissal reduce the incentive of firms to invest in screening applicants, therefore increasing the uncertainty about their unobserved skills and productivity.

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File URL: http://mpra.ub.uni-muenchen.de/11775/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11775.

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Date of creation: 10 Dec 2007
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Handle: RePEc:pra:mprapa:11775

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Related research
Keywords: Employment protection; Stochastic.job matching model; Screening;

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Find related papers by JEL classification:
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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  1. Veracierto, Marcelo, 2007. "On the short-run effects of labor market reforms," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1213-1229, May. [Downloadable!] (restricted)
  2. Victor Aguirregabiria & Cesar Alonso-Borrego, 2009. "Labor Contracts and Flexibility: Evidence from a Labor Market Reform in Spain," Working Papers tecipa-346, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
  3. John M. Abowd & George T. Milkovich & John M. Hannon, 1990. "The effects of human resource management decisions on shareholder value," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 43(3), pages 203-236, February.
  4. Lars Ljungqvist, 2002. "How Do Lay--off Costs Affect Employment?," Economic Journal, Royal Economic Society, vol. 112(482), pages 829-853, October. [Downloadable!] (restricted)
  5. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 381-402, July. [Downloadable!] (restricted)
  6. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x.
  7. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 397-415, July. [Downloadable!] (restricted)
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  8. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE. [Downloadable!]
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  9. Michael J. Pries, 2004. "Persistence of Employment Fluctuations: A Model of Recurring Job Loss," Review of Economic Studies, Blackwell Publishing, vol. 71(1), pages 193-215, 01. [Downloadable!] (restricted)
  10. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Does Employment Protection Reduce Productivity? Evidence From US States," Economic Journal, Royal Economic Society, vol. 117(521), pages 189-217, 06. [Downloadable!] (restricted)
  11. 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)
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  12. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October. [Downloadable!] (restricted)
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  13. Jed Devaro, 2005. "Employer Recruitment Strategies and the Labor Market Outcomes of New Hires," Economic Inquiry, Oxford University Press, vol. 43(2), pages 263-282, April. [Downloadable!] (restricted)
  14. Etienne Wasmer, 2006. "General versus Specific Skills in Labor Markets with Search Frictions and Firing Costs," American Economic Review, American Economic Association, vol. 96(3), pages 811-831, June. [Downloadable!]
  15. Jed DeVaro, 2005. "The Labor Market Effects of Employer Recruitment Choice," Labor and Demography 0508006, EconWPA. [Downloadable!]
  16. Ioana Marinescu, 2007. "Shortening the Tenure Clock: the Impact of Strengthened U.K. Job Security Legislation," Working Papers 07-04, Utrecht School of Economics. [Downloadable!]
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