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Unions, Firing Costs, and Unemployment

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  • Leonor Modesto

Abstract

. We study the effects of firing costs in unionized economies with heterogeneous workers. We consider an overlapping generations model where workers participate in the labour market both when young and when old. All workers belong to the same union that sets wages unilaterally. We find that at given wages firing costs increase youth unemployment and decrease old‐age unemployment. However, once the wage response is considered, firing costs increase both youth and old‐age unemployment. Indeed, knowing that when firing costs are higher firms refrain from firing, the union increases the wage of old workers, and, therefore, old‐age unemployment increases.

Suggested Citation

  • Leonor Modesto, 2008. "Unions, Firing Costs, and Unemployment," LABOUR, CEIS, vol. 22(3), pages 509-546, September.
  • Handle: RePEc:bla:labour:v:22:y:2008:i:3:p:509-546
    DOI: 10.1111/j.1467-9914.2008.00424.x
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    Cited by:

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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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