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Hiring, firing, and relocation under employment protection

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  • Dai, Min
  • Keppo, Jussi
  • Maull, Tim

Abstract

We analyze how hiring and firing costs as well as firing regulatory delays affect firms’ hiring, firing, and relocation policy with a stochastic control model. These frictions are substantial; e.g. the firing delay can be almost a year. In the model hiring and firing costs depend on the firm size and the number of people hired or fired. Based on our simulations, hiring and firing elasticities without relocation are highest with respect to demand and productivity volatility and the hiring and firing variable costs. The elasticity of firing due to relocation is highest with respect to the firm-sized firing cost.

Suggested Citation

  • Dai, Min & Keppo, Jussi & Maull, Tim, 2015. "Hiring, firing, and relocation under employment protection," Journal of Economic Dynamics and Control, Elsevier, vol. 56(C), pages 55-81.
    • Handle: RePEc:eee:dyncon:v:56:y:2015:i:c:p:55-81
    DOI: 10.1016/j.jedc.2015.04.005
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    More about this item

    Keywords

    Labor market frictions; Job reallocation; Stochastic control;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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