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Age‐Dependent Employment Protection

  • Arnaud Chéron
  • Jean‐Olivier Hairault
  • François Langot

This paper examines the age-related design of firing taxes by extending the theory of job creation and job destruction to account for a finite working life-time. We first argue that the potential employment gains related to employment protection are high for older workers, but higher firing taxes for these workers increase job destruction rates for the younger generations. On the other hand, age-decreasing firing taxes can lead to lower job destruction rates at all ages. Furthermore, from a normative standpoint, because firings of older (younger) workers exert a negative (positive) externality on the matching process, we find that the first best age-dynamic of firing taxes and hiring subsidies is typically hump-shaped. Taking into account distortions related to unemployment benefits and bargaining power shows the robustness of this result, in contradiction with the existing policies in most OECD countries.

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File URL: http://hdl.handle.net/10.1111/j.1468-0297.2011.02453.x
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 121 (2011)
Issue (Month): 557 (December)
Pages: 1477-1504

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Handle: RePEc:ecj:econjl:v:121:y:2011:i:557:p:1477-1504
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  1. David Neumark, 2001. "Age Discrimination Legislation in the United States," NBER Working Papers 8152, National Bureau of Economic Research, Inc.
  2. 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.
  3. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  4. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  5. Alesina, Alberto F & Ichino, Andrea & Karabarbounis, Loukas, 2007. "Gender Based Taxation and the Division of Family Chores," CEPR Discussion Papers 6591, C.E.P.R. Discussion Papers.
  6. Luc Behaghel & Bruno Crépon & Béatrice Sédillot, 2008. "The perverse effects of partial employment protection reform: the case of French older workers," Working Papers 23397, Institut National de la Recherche Agronomique, France.
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