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Job security and the age-composition of employment: evidence from Chile

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  • Carmen Pagés
  • Claudio E. Montenegro

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Abstract

This paper develops and tests a mechanism by which job security affects the age-composition of employment. This mechanism is based on the relative costs of dismissing young versus older workers resulting from job security provisions that are related to tenure. Using 39 consecutive annual household-surveys from Chile, we find that job security is associated with a substantial decline in the wage employment-to-population rate of young workers. In contrast, we do not find such a decline in young self-employment rates or in the wage employment rates of older workers. Comparing results for men and women and using measures of relative dismissal costs, we find that the adverse effect of job security on youth employment is driven by the link between severance payments and tenure. We also find that job security does not have a significant impact on overall aggregate employment, participation or unemployment rates.

Suggested Citation

  • Carmen Pagés & Claudio E. Montenegro, 2007. "Job security and the age-composition of employment: evidence from Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 34(2 Year 20), pages 109-139, December.
  • Handle: RePEc:udc:esteco:v:34:y:2007:i:2:p:109-139
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. MacLeod, W. Bentley, 2011. "Great Expectations: Law, Employment Contracts, and Labor Market Performance," Handbook of Labor Economics, Elsevier.
    2. Muñoz Saavedra, Ercio, 2009. "Reformas Estructurales y Productividad Total de Factores
      [Structural Reforms and Total Factor Productivity]
      ," MPRA Paper 37362, University Library of Munich, Germany.
    3. Claudio Montenegro & Carmen Pagés, 2005. "Who Benefits from Labor Market Regulations? Chile 1960-1998," Central Banking, Analysis, and Economic Policies Book Series,in: Jorge Restrepo & Andrea Tokman R. & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edi (ed.), Labor Markets and Institutions, edition 1, volume 8, chapter 4, pages 077-114 Central Bank of Chile.
    4. Claudio Montenegro & Carmen Pagés-Serra, 2003. "¿Quién se beneficia con la normativa de los mercados laborales?: Chile, 1960-1998," Research Department Publications 4346, Inter-American Development Bank, Research Department.
    5. Amil Petrin & Jagadeesh Sivadasan, 2006. "Job Security Does Affect Economic Efficiency: Theory, A New Statistic, and Evidence from Chile," NBER Working Papers 12757, National Bureau of Economic Research, Inc.
    6. Esteban Puentes & Dante Contreras & Claudia Sanhueza, 2007. "Self-Employment in Chile, long run trends and education and age structures changes," Estudios de Economia, University of Chile, Department of Economics, vol. 34(2 Year 20), pages 203-247, December.
    7. Carmen Pagés & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," IDB Publications (Working Papers) 1094, Inter-American Development Bank.
    8. Ana María Loboguerrero & Ugo Panizza, 2003. "Inflation and Labor Market Flexibility: The Squeaky Wheel Gets the Grease," IDB Publications (Working Papers) 1478, Inter-American Development Bank.
    9. Zuzana Potužáková & Stanislava Mildeová, 2015. "Analýza příčin a důsledků nezaměstnanosti mladých v Evropské unii
      [Analysis of Causes and Consequences of the Youth Unployment in the EU]
      ," Politická ekonomie, University of Economics, Prague, vol. 2015(7), pages 877-894.
    10. Janine Berg (ed.), 2015. "Labour Markets, Institutions and Inequality," Books, Edward Elgar Publishing, number 16143, April.
    11. Djankov, Simeon & Ramalho, Rita, 2009. "Employment laws in developing countries," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 3-13, March.
    12. Ana Maria Loboguerrero & Ugo Panizza, 2003. "Inflación y flexibilidad del mercado laboral: La rueda que chilla es la que se engrasa," Research Department Publications 4348, Inter-American Development Bank, Research Department.
    13. Nicola Brandt, 2012. "Reducing Poverty in Chile: Cash Transfers and Better Jobs," OECD Economics Department Working Papers 951, OECD Publishing.
    14. Carmen Pagés-Serra & James J. Heckman, 2000. "El costo de la regulación de la estabilidad laboral: elementos de juicio de los mercados laborales latinoamericanos," Research Department Publications 4228, Inter-American Development Bank, Research Department.
    15. Horst Feldmann, 2003. "Labor Market Regulation and Labor Market Performance: Evidence Based on Surveys among Senior Business Executives," Kyklos, Wiley Blackwell, vol. 56(4), pages 509-540, November.

    More about this item

    Keywords

    Job security; employment composition; severance pay; Chile; job tenure.;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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