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An essay on the generational effect of employment protection

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  • Yu-Fu Chen
  • Gylfi Zoega

    (Department of Economics, Mathematics & Statistics, Birkbeck)

Abstract

This paper provides an explanation for the observed positive relationship between youth unemployment and the cost of firing workers. When the cost of firing workers is high, firms only fire when the present discounted value of future losses is high, in which case they gain little by postponing the firing decision in the hope that productivity will recover. The young workers are then the first to go due to their longer remaining tenure. In contrast, when the cost of firing workers is low, the present discounted value of future losses is small at the firing margin and firms may choose to wait in the hope of a recovery. In this case they may choose to fire the older workers first since the younger ones are more likely to be around when productivity recovers.

Suggested Citation

  • Yu-Fu Chen & Gylfi Zoega, 2009. "An essay on the generational effect of employment protection," Birkbeck Working Papers in Economics and Finance 0915, Birkbeck, Department of Economics, Mathematics & Statistics.
  • Handle: RePEc:bbk:bbkefp:0915
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    References listed on IDEAS

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    Cited by:

    1. Yu-Fu Chen & Gylfi Zoega, 2010. "Life-Cycle, Effort and Academic Deadwood," Birkbeck Working Papers in Economics and Finance 1009, Birkbeck, Department of Economics, Mathematics & Statistics.
    2. Yu-Fu Chen & Gylfi Zoega, 2010. "Strong Hysteresis due to Age Effects," Dundee Discussion Papers in Economics 230, Economic Studies, University of Dundee.
    3. Chen, Yu-Fu & Zoeg, Gylfi, 2011. "Life-Cycle, Effort and Academic Inactivity," SIRE Discussion Papers 2011-27, Scottish Institute for Research in Economics (SIRE).

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