Do labor market conditions affect the strictness of employment protection legislation?
We provide a theoretical microfoundation for the negative relationship between firing costs and labor market tightness and its effects on labor market performance. The optimal level of firing costs is chosen by the employed worker i.e. the insider by maximizing her human capital. Performing a comparative statics exercise, we analyze the effects of labor market tightness on the optimal choice of firing costs. The results are clear cut and allow to obtain a decreasing firing costs function in the labor market tightness. Moreover, we show that this negative relationship can give rise to a labor market configuration characterized by multiple equilibria: prolonged average duration of unemployment will produce a labor market with low flows and high strictness of employment protection, and vice versa.
Volume (Year): 10 (2008)
Issue (Month): 4 ()
|Contact details of provider:|| |
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.:
- Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003.
"Are judges biased by labor market conditions?,"
European Economic Review,
Elsevier, vol. 47(5), pages 913-944, October.
- Siegelman, Peter & Donohue, John J, III, 1995. "The Selection of Employment Discrimination Disputes for Litigation: Using Business Cycle Effects to Test the Priest-Klein Hypothesis," The Journal of Legal Studies, University of Chicago Press, vol. 24(2), pages 427-462, June.
- Saltari Enrico & Tilli Riccardo, 2004. "Labor Market Performance and Flexibility: Which Comes First?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-25, March.
- Ioana Marinescu, 2011.
"Are Judges Sensitive to Economic Conditions? Evidence from Uk Employment Tribunals,"
Cornell University, ILR School, vol. 64(4), pages 673-698, July.
- Ioana Marinescu, 2008. "Are Judges Sensitive to Economic Conditions? Evidence from UK Employment Tribunals," Working Papers 0802, Harris School of Public Policy Studies, University of Chicago.
When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-08j60003. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.