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Dismissal Protection or Wage Flexibility

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Author Info
Jens Rubart () (Institute of Economics Darmstadt University of Technology)

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Abstract

Due to increased technological change which lead to an increased demand for skilled workers, it becomes more and more difficult for low skilled workers to find a job. How should a society or political decision makers react? Recently, German politicians are engaged in a discussion about the introduction of combined and minimum wages as well as the reduction of employment protection mechanisms in order to increase the employment status of low skilled workers. However, a detailed macroeconomic examination of the effects of the above mentioned labor market policies in an environment which exhibits structural changes is still missing. Based on recent findings by Lindquist (2004) and Pierrard and Sneessens (2004), in this paper a dynamic general equilibrium model with equilibrium unemployment due to search an matching frictions is developed. Within this framework, the effects of labor market policies, in particular the introduction of minimum wages and firing costs, are analyzed. We show that a reduction of employment protection mechanisms are rather ineffective to increase the employment status of low skilled workers. However, it is shown that the higher a relative wage rigidity is the lower is low skilled employment

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 406.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:406

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Related research
Keywords: DGE Model; Heterogeneous Labor; Skill Biased Technological Change; Search Unemployment; Employment Protection; Minimum Wages;

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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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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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. Jens Rubart & Willi Semmler, 2007. "East German Unemployment from a Macroeconomic Perspective," Darmstadt Discussion Papers in Economics 187, Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology). [Downloadable!]
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This page was last updated on 2009-11-13.

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