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Dual employment protection legislation: a framework for analysis

Listed author(s):
  • Juan J. Dolado

    ()

    (Universidad Carlos III de Madrid)

  • Marcel Jansen

    ()

    (Universidad Carlos III de Madrid)

  • Juan F. Jimeno

    ()

    (Banco de España)

In many countries, Employment Protection Legislation (EPL) establishes different regulations for certain groups of workers who face more disadvantages in the labor market (young workers, women, unskilled workers, etc.) with the aim of improving their employability. Well known examples are the introduction of atypical employment contracts (e.g., temporary and determined duration contracts) which ease firing restrictions for some, but not all, workers. This paper discusses the effects of EPL varying among workers of different skills on the level and composition of unemployment, job flows, productivity and welfare. By using an extension of Mortensen Pissarides' (1994) search model where heterogeneous workers compete for the same jobs, we are able to identify several key channels through which changing firing costs for some groups of workers affects hiring and firing of all workers and, hence, may have a different impact on aggregate labor market variables than reducing firing costs across the board. Some analytical and simulation results also show that these effects of differentiated firing costs by workers' skills may be different depending upon the initial state of the labor market.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/05/Fic/dt0510e.pdf
File Function: First version, May 2005
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Paper provided by Banco de España & Working Papers Homepage in its series Working Papers with number 0510.

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Length: 45 pages
Date of creation: May 2005
Handle: RePEc:bde:wpaper:0510
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