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Simulations of Labor Policies in Tunisia with a Structural Job-Search Model

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  • Robalino, David
  • Weber, Michael

Abstract

We build a job-search model to assess the impacts of core labor market policies on labor market outcomes and public expenditures. The model assesses possible outcomes of regulations on labor markets focusing on labor costs, take-home pay, and the ’value’ of unemployment. We formalize the behaviors of heterogeneous agents in a dynamic setting. The model simulates career histories and wages of individuals, tracking transitions between the following labor market states: unemployment, formal wage employment, informal wage employment, and self-employment. To this end, the model simulates: (i) the process by which workers find job opportunities; (ii) the wage bargaining process; (iii) employers’ decisions to offer formal or informal contracts; and (iv) workers’ decisions to accept job offers, engage in self-employment, or remain unemployed. Contrary to other models used in policy analysis, we directly estimate structural parameters using labor force survey data. To this end, a numerical algorithm is used to find a set of model parameters that match the following moments: the unemployment rate; the shares of employment in formal wage, informal wage, and self-employment, as well as the average and variance of wages in each of these sectors. Important contributions of this work are (i) the specific inclusion of the informal sector and self-employment in the estimation of the effects of labor policies, (ii) a numerical solution to the search model that enables modeling multiple labor policies in one dedicated simulation tool, and (iii) an algorithm that determines model parameters for central moments of the distribution of key labor market outcomes. Simulations for the case of Tunisia demonstrate that labor policies can have significant effects on the structure of the labor market. It shows that it is possible to identify and communicate labor policies that better balance workers' protections with improved employment outcomes and sustainable public expenditures.

Suggested Citation

  • Robalino, David & Weber, Michael, 2016. "Simulations of Labor Policies in Tunisia with a Structural Job-Search Model," Conference papers 332791, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332791
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    References listed on IDEAS

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    3. James Albrecht & Lucas Navarro & Susan Vroman, 2009. "The Effects of Labour Market Policies in an Economy with an Informal Sector," Economic Journal, Royal Economic Society, vol. 119(539), pages 1105-1129, July.
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    5. Margolis, David N. & Navarro, Lucas & Robalino, David A., 2012. "Unemployment Insurance, Job Search and Informal Employment," IZA Discussion Papers 6660, IZA Network @ LISER.
    6. Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 397-415.
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