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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. Copyright 2008 The Author. Journal compilation 2008 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.

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
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    References listed on IDEAS

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    Cited by:

    1. Kirsten Daniel & W. S. Siebert, 2005. "Does employment protection reduce the demand for unskilled labour?," International Economic Journal, Taylor & Francis Journals, vol. 19(2), pages 197-222.
    2. Nikolai Stähler, 2008. "Unemployment and Employment Protection in a Unionized Economy with Search Frictions," LABOUR, CEIS, vol. 22(2), pages 271-289, June.

    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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