IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/2410.html
   My bibliography  Save this paper

Hiring And Firing Costs, Adverse Selection And The Persistence Of Unemployment

Author

Listed:
  • Kugler, Adriana D.
  • Saint-Paul, Gilles

Abstract

In this paper, we present a matching model with adverse selection that explains why flows into and out of unemployment are much lower in Europe compared to North America, while employment-to-employment flows are similar in the two continents. In the model, firms use discretion in terms of whom to fire and, thus, low quality workers are more likely to be dismissed than high quality workers. Moreover, as hiring and firing costs increase, firms find it more costly to hire a bad worker and, thus, they prefer to hire out of the pool of employed job seekers rather than out of the pool of the unemployed, who are more likely to turn out to be 'lemons'. We use microdata for Spain and the US and find that the ratio of the job finding probability of the unemployed to the job finding probability of employed job seekers was smaller in Spain than in the US. Furthermore, using US data, we find that the discrimination against the unemployed increased over the 1980's in those states that raised firing costs by introducing exceptions to the employment-at-will doctrine.

Suggested Citation

  • Kugler, Adriana D. & Saint-Paul, Gilles, 2000. "Hiring And Firing Costs, Adverse Selection And The Persistence Of Unemployment," CEPR Discussion Papers 2410, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2410
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2410
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Co, Catherine Y. & Gang, Ira N. & Yun, Myeong-Su, 1998. "Returns to Returning: Who Went Abroad and What Does it Matter?," IZA Discussion Papers 19, Institute for the Study of Labor (IZA).
    2. Mincer, Jacob, 1978. "Family Migration Decisions," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 749-773, October.
    3. Borjas, George J, 1987. "Self-Selection and the Earnings of Immigrants," American Economic Review, American Economic Association, vol. 77(4), pages 531-553, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guerrazzi, Marco, 2016. "Wage and employment determination in a dynamic insider-outsider model," MPRA Paper 74759, University Library of Munich, Germany.
    2. World Bank, 2002. "Labor Market in Postwar Bosnia and Herzegovina : How to Encourage Businesses to Create Jobs and Increase Worker Mobility," World Bank Other Operational Studies 15333, The World Bank.
    3. Chen Liang & Yili Hong & Bin Gu, 2017. "Home Bias in Global Employment," Working Papers 17-06, NET Institute.
    4. Wesselbaum, Dennis, 2009. "Firing costs in a New Keynesian model with endogenous separations," Kiel Working Papers 1550, Kiel Institute for the World Economy (IfW).
    5. Ahrens, Steffen & Wesselbaum, Dennis, 2009. "On the introduction of firing costs," Kiel Working Papers 1559, Kiel Institute for the World Economy (IfW).
    6. Vodopivec, Milan & Raju, Dhushyanth, 2002. "Income support systems for the unemployed : issues and options," Social Protection and Labor Policy and Technical Notes 25529, The World Bank.
    7. Kirsten Daniel & W. S. Siebert, 2005. "Does employment protection reduce the demand for unskilled labour?," International Economic Journal, Taylor & Francis Journals, vol. 19(2), pages 197-222.
    8. Eriksson, Stefan, 2002. "Imperfect information, wage formation, and the employability of the unemployed," Working Paper Series 2002:17, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    9. repec:sgh:gosnar:y:2017:i:3:p:29-53 is not listed on IDEAS
    10. Pekka Ilmakunnas & Mika Maliranta, 2004. "Hiring from unemployment and separation to unemployment," Applied Economics Letters, Taylor & Francis Journals, vol. 11(2), pages 91-95.

    More about this item

    Keywords

    Adverse Selection; Discrimination; Matching Models; Turnover Costs; Unemployment; Worker Flows;

    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
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:2410. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.