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How Do Lay--off Costs Affect Employment?

  • Lars Ljungqvist

    (Stockholm School of Economics and CEPR)

General equilibrium analyses of lay--off costs have had mixed messages on the implications for employment. This paper brings out the economic forces at work and sheds light on the disparate results. We explain why lay--off costs tend to increase employment in search models while the opposite is true in models with employment lotteries. In matching models, we show that the employment effects depend critically on how lay--off costs are assumed to enter the bargaining process. Copyright Royal Economic Society 2002

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 112 (2002)
Issue (Month): 482 (October)
Pages: 829-853

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Handle: RePEc:ecj:econjl:v:112:y:2002:i:482:p:829-853
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  1. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
  2. Lars Ljungqvist & Thomas J. Sargent, 1995. "The European unemployment dilemma," Working Paper Series, Macroeconomic Issues 95-17, Federal Reserve Bank of Chicago.
  3. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  4. Gilles Saint-Paul, 1995. "The High Unemployment Trap," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 527-550.
  5. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
  6. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
  7. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  8. Dale T. Mortensen, 1979. "The Matching Process as a Non-Cooperative/Bargaining Game," Discussion Papers 384, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  10. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
  11. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  12. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, Oxford University Press, vol. 84(1), pages 113-126.
  13. Fernando Alvarez & Marcelo Veracierto, 1998. "Search, self-insurance and job-security provisions," Working Paper Series WP-98-2, Federal Reserve Bank of Chicago.
  14. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 699-726.
  15. Christopher A. Pissarides, 1985. "Taxes, Subsidies and Equilibrium Unemployment," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 121-133.
  16. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  17. Emerson, Michael, 1988. "Regulation or deregulation of the labour market : Policy regimes for the recruitment and dismissal of employees in the industrialised countries," European Economic Review, Elsevier, vol. 32(4), pages 775-817, April.
  18. Burda, Michael C, 1992. " A Note on Firing Costs and Severance Benefits in Equilibrium Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(3), pages 479-89.
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