Employment Protection Regulations and New Hiring
AbstractIn the real world, there are various regulations concerned with the dismissal of employees. We consider the effects of dismissal regulations with a simple incomplete labor contract model. Under moral hazard, the existence of a regulation always increases wage level and decreases firms' profits. However, the regulation can improve social welfare if workers' outside option is sufficiently low. Furthermore, we will show that the regulation can enhance new hiring.
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Length: 24 pages
Date of creation: Aug 2000
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-09-01 (All new papers)
- NEP-LAB-2000-09-01 (Labour Economics)
- NEP-LAW-2000-09-01 (Law & Economics)
- NEP-REG-2000-09-01 (Regulation)
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