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The Role of Institutions in Transatlantic Employment Differences: A Life-Cycle View

  • Arnaud CHÉRON
  • Jean-Olivier HAIRAULT
  • François LANGOT

Our paper seeks to gain insights into the effects of labor-market institutions on the dynamics of the labor market, during the diffusion process of new technologies. Because these institutions differ between Europe and the United States, we expect the dynamics of the labor market to also diverge between both areas. We propose an endogenous job-destruction matching framework, with heterogeneous workers, where the segmentation of the labor market between workers having the required ability to do a technological job and the rest of the workers is endogenous. We show that the dynamics of this segmentation depends on the generosity of the unemployment-benefit system. When the system is generous, we obtain a U-shaped path of the labor-market segmentation, implying that workers that previously had access to technological positions may be excluded from them at a given moment of time. The presence of firing costs tends to improve job stability, but its final effect on the market tightness and unemployment rates is minor.

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Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (2009)
Issue (Month): 95-96 ()
Pages: 121-138

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Handle: RePEc:adr:anecst:y:2009:i:95-96:p:07
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  1. Simon Burgess & Helene Turon, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies – A Comment," Bristol Economics Discussion Papers 05/573, Department of Economics, University of Bristol, UK.
  2. Jean-Olivier Hairault & Francois Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and Older Workers' Employment: The Case for Delaying the Retirement Age," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1034-1076, 09.
  3. Chéron, Arnaud & Hairault, Jean-Olivier & Langot, François, 2008. "Age-Dependent Employment Protection," IZA Discussion Papers 3851, Institute for the Study of Labor (IZA).
  4. Joseph G. Altonji & Nicolas Williams, 2005. "Do wages rise with job seniority? A reassessment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 58(3), pages 370-397, April.
  5. Chéron, Arnaud & Hairault, Jean-Olivier & Langot, François, 2011. "Life Cycle Equilibrium Unemployment," CEPREMAP Working Papers (Docweb) 1103, CEPREMAP.
  6. Lars Ljungqvist & Thomas J. Sargent, 2008. "Two Questions about European Unemployment," Econometrica, Econometric Society, vol. 76(1), pages 1-29, 01.
  7. Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Social, Employment and Migration Working Papers 35, OECD Publishing.
  8. Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series 0853, European Central Bank.
  9. Edward C. Prescott & Richard Rogerson & Johanna Wallenius, 2007. "Lifetime aggregate labor supply with endogenous workweek length," Staff Report 400, Federal Reserve Bank of Minneapolis.
  10. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  11. Lars Ljungqvist & Thomas J. Sargent, 2004. "European Unemployment and Turbulence Revisited in a Matching Model," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 456-468, 04/05.
  12. Garibaldi, Pietro & Violante, Giovanni L, 2002. "Firing Tax and Severance Payment in Search Economies: A Comparison," CEPR Discussion Papers 3636, C.E.P.R. Discussion Papers.
  13. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
  14. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
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