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Fixed-term employment contracts in an equilibrium search model

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  • Alvarez, Fernando
  • Veracierto, Marcelo

Abstract

We develop a theoretical model of firm dynamics and unemployment and characterize equilibria with tenure dependent separation taxes. The model is a version of the Lucas and Prescott island model with undirected search. Two equivalent decentralizations are considered: one with spot labor markets and one with long-term employment relations. We model “temporary contracts” as the special case of a separation tax that only applies to workers with tenure higher than J. While in principle these contracts require a J-dimensional state space, equilibrium allocations solve a simple dynamic programming problem characterized by two-dimensional inaction set(s).

Suggested Citation

  • Alvarez, Fernando & Veracierto, Marcelo, 2012. "Fixed-term employment contracts in an equilibrium search model," Journal of Economic Theory, Elsevier, vol. 147(5), pages 1725-1753.
    • Handle: RePEc:eee:jetheo:v:147:y:2012:i:5:p:1725-1753
    DOI: 10.1016/j.jet.2012.05.015
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Marcelo Veracierto, 2007. "Establishments dynamics and matching frictions in classical competitive equilibrium," Working Paper Series WP-07-16, Federal Reserve Bank of Chicago.
    2. Anindya S. Chakrabarti, 2017. "Scale-free distribution as an economic invariant: a theoretical approach," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 12(1), pages 1-26, April.
    3. Nikolaos Kokonas & Paulo Santos Monteiro, 2023. "Self-fulfilling labor wedge fluctuations and unemployment insurance," Discussion Papers 2313, Centre for Macroeconomics (CFM).
    4. Coen-Pirani, Daniele, 2010. "Understanding gross worker flows across U.S. states," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 769-784, October.
    5. Victor Aguirregabiria & Cesar Alonso-Borrego, 2014. "Labor Contracts And Flexibility: Evidence From A Labor Market Reform In Spain," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 930-957, April.
    6. Lalé, Etienne, 2017. "Worker reallocation across occupations: Confronting data with theory," Labour Economics, Elsevier, vol. 44(C), pages 51-68.
    7. Shutao Cao & Enchuan Shao & Pedro Silos, 2010. "Fixed-term and permanent employment contracts: theory and evidence," FRB Atlanta Working Paper 2010-13, Federal Reserve Bank of Atlanta.
    8. Morris A. Davis & Jonas D. M. Fisher & Marcelo Veracierto, 2013. "Gross Migration, Housing and Urban Population Dynamics," Working Paper Series WP-2013-19, Federal Reserve Bank of Chicago.
    9. Hoffmann, Florian & Inderst, Roman & Turlo, Sergey, 2018. "Regulating Cancellation Rights with Consumer Experimentation," EconStor Preprints 253659, ZBW - Leibniz Information Centre for Economics.
    10. Tejada, Mauricio M., 2017. "Dual labor markets and labor protection in an estimated search and matching model," Labour Economics, Elsevier, vol. 46(C), pages 26-46.
    11. Yang, Guanyi, 2017. "General Equilibrium Evaluation of Temporary Employment," MPRA Paper 80047, University Library of Munich, Germany.
    12. Veracierto, Marcelo, 2007. "On the short-run effects of labor market reforms," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1213-1229, May.
    13. Davis, Morris A. & Fisher, Jonas D.M. & Veracierto, Marcelo, 2021. "Migration and urban economic dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    14. Alvarez, Fernando & Veracierto, Marcelo, 2012. "Fixed-term employment contracts in an equilibrium search model," Journal of Economic Theory, Elsevier, vol. 147(5), pages 1725-1753.
    15. Gebauer, Markus, 2019. "Permanent and temporary workers in a matching framework," Research in Economics, Elsevier, vol. 73(2), pages 138-148.

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    More about this item

    Keywords

    Temporary contracts; Fixed-term contracts; Firing costs; Search; Unemployment;
    All these keywords.

    JEL classification:

    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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