Labor market reforms, job instability, and the flexibility of the employment relationship
We endogenize separation in a search model of the labor market and allow for bargaining over the continuation of employment relationships following productivity shocks to take place under asymmetric information. In such a setting separation may occur even if continuation of the employment relationship is privately efficient for workers and firms. We show that reductions in the cost of separation, owing for example to a reduction in firing taxes, lead to an increase in job instability and, when separation costs are initially high, may be welfare decreasing for workers and firms. We furthermore show that, in response to an exogenous reduction in firing taxes, workers and firms may switch from rigid to flexible employment contracts, which further amplifies the increase in job instability caused by policy reform.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- repec:pri:indrel:dsp011j92g746j is not listed on IDEAS
- César Alonso-Borrego & Jesús Fernández-Villaverde & José E. Galdón-Sánchez, 2004.
"Evaluating Labor Market Reforms: A General Equilibrium Approach,"
PIER Working Paper Archive
04-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Alonso-Borrego, César & Galdón Sánchez, José E. & Fernández Villaverde, Jesús, 2004. "Evaluating labor market reforms : a general equilibrium approach," UC3M Working papers. Economics we042307, Universidad Carlos III de Madrid. Departamento de Economía.
- César Alonso-Borrego & Jesús Fernández-Villaverde & José E. Galdón-Sánchez, 2005. "Evaluating Labor Market Reforms: A General Equilibrium Approach," NBER Working Papers 11519, National Bureau of Economic Research, Inc.
- Alonso-Borrego, César & Fernández-Villaverde, Jesús & Galdon-Sanchez, Jose Enrique, 2004. "Evaluating Labor Market Reforms: A General Equilibrium Approach," IZA Discussion Papers 1129, Institute for the Study of Labor (IZA).
- Cesar Alonso-Borrego & Jesus Fernandez-Villaverde & Jose E. Galdon-Sanchez, 2004. "Evaluating Labor Market Reforms: A General Equilibrium Approach," Working Papers 10, Princeton University, Department of Economics, Industrial Relations Section..
- Moen, Espen R & Rosén, Åsa, 2006. "Incentives in Competitive Search Equilibrium and Wage Rigidity," CEPR Discussion Papers 5554, C.E.P.R. Discussion Papers.
- Alvarez, Fernando & Veracierto, Marcelo, 2001. "Severance payments in an economy with frictions," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 477-498, June.
- Burguet, Roberto & Caminal, Ramon & Matutes, Carmen, 2002. "Golden cages for showy birds: Optimal switching costs in labor contracts," European Economic Review, Elsevier, vol. 46(7), pages 1153-1185, July.
- Chris Pissarides, 2008.
"Employment Outcomes in the Welfare State,"
2008 Meeting Papers
1096, Society for Economic Dynamics.
- L. Rachel Ngai & Christopher Pissarides, 2008. "Employment outcomes in the welfare state," LSE Research Online Documents on Economics 3599, London School of Economics and Political Science, LSE Library.
- L. Rachel Ngai & Christopher Pissarides, 2008. "Employment outcomes in the welfare state," LSE Research Online Documents on Economics 3525, London School of Economics and Political Science, LSE Library.
- L. Rachel Ngai & Christopher A. Pissarides, 2008. "Employment Outcomes in the Welfare State," CEP Discussion Papers dp0856, Centre for Economic Performance, LSE.
- Schmitz, Patrick W, 2004.
"Job Protection Laws and Agency Problems Under Asymmetric Information,"
CEPR Discussion Papers
4031, C.E.P.R. Discussion Papers.
- Schmitz, Patrick W., 2004. "Job protection laws and agency problems under asymmetric information," European Economic Review, Elsevier, vol. 48(5), pages 1027-1046, October.
- Niko Matouschek, 2004. "Ex Post Inefficiencies in a Property Rights Theory of the Firm," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 125-147, April.
- Faig, Miquel & Jerez, Belen, 2005. "A theory of commerce," Journal of Economic Theory, Elsevier, vol. 122(1), pages 60-99, May.
- Moen, Espen R, 1997.
"Competitive Search Equilibrium,"
Journal of Political Economy,
University of Chicago Press, vol. 105(2), pages 385-411, April.
- Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877.
When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:53:y:2009:i:1:p:19-36. 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: (Shamier, Wendy)
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.