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Job Flow Dynamics and Firing Restrictions

  • P Garibaldi

The purpose of this paper is to rationalize cross country differences in cyclical behaviour of job creation and destruction. In a stochastic dynamic search model with endogenous job separation it is shown that the relative volatility of job creation and destruction depends crucially upon the arrival rate of exogenous firing permissions. The tighter the firing restrictions, the less volatile is job destruction and the higher the correlation between job reallocation and net employment changes. Furthermore, as firing restrictions increase, the average level of job reallocation falls while equilibrium unemployment is approximately constant. These results are in line with the cross country evidence on job reallocation and unemployment.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0256.

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Date of creation: Aug 1995
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Handle: RePEc:cep:cepdps:dp0256
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Burda, Michael & Wyplosz, Charles, 1994. "Gross worker and job flows in Europe," European Economic Review, Elsevier, vol. 38(6), pages 1287-1315, June.
  2. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues 91-5, Federal Reserve Bank of Chicago.
  3. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "A Model of Labour Demand with Linear Adjustment Costs," CEPR Discussion Papers 690, C.E.P.R. Discussion Papers.
  4. Fiorito, Riccardo & Kollintzas, Tryphon, 1994. "Stylized facts of business cycles in the G7 from a real business cycles perspective," European Economic Review, Elsevier, vol. 38(2), pages 235-269, February.
  5. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  6. Konings, Jozef, 1995. "Job Creation and Job Destruction in the UK Manufacturing Sector," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 5-24, February.
  7. Bertola, Giuseppe & Rogerson, Richard, 1997. "Institutions and labor reallocation," European Economic Review, Elsevier, vol. 41(6), pages 1147-1171, June.
  8. Christiano, Lawrence J, 1990. "Linear-Quadratic Approximation and Value-Function Iteration: A Comparison," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 99-113, January.
  9. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  10. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-90, September.
  11. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  12. Burda, Michael C, 1992. " A Note on Firing Costs and Severance Benefits in Equilibrium Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(3), pages 479-89.
  13. Emerson, Michael, 1988. "Regulation or deregulation of the labour market : Policy regimes for the recruitment and dismissal of employees in the industrialised countries," European Economic Review, Elsevier, vol. 32(4), pages 775-817, April.
  14. John Baldwin & Timothy Dunne & John Haltiwanger, 1998. "A Comparison Of Job Creation And Job Destruction In Canada And The United States," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 347-356, August.
  15. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  16. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186 National Bureau of Economic Research, Inc.
  17. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
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