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Job Protection, Minimum Wage and Unemployment

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  • Pierre Cahuc

    (Crest)

  • André Zylberberg

    (Crest)

Abstract

We analyze how wage setting institutions and job-security provisions interact on unemployment. The assumption that wages are renegotiated by mutual agreement only is introduced in a matching model with endogenous job destruction à la Mortensen and Pissarides (1994) in order to get wage profiles with proper microfoundations. Then, it is shown that job protection policies influence the wage distribution and that government mandated severance transfers from employers to workers are not any more neutral, as in the standard matching model where wages are continuously renegotiated: In our framework high redundancy transfers influence employment. Moreover, the assumption of renegotiation by mutual agreement allows us to introduce a minimum wage in a coherent way, and to study its interactions with job protection policies. Our computational exercises suggest that redundancy transfers and administrative dismissal restrictions have negligeable unemployment effects when wages are flexible or when the minimum wage is low, but a dramatic positive impact on unemployment when there is a high minimum wage.
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Suggested Citation

  • Pierre Cahuc & André Zylberberg, 1999. "Job Protection, Minimum Wage and Unemployment," Working Papers 99-38, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:99-38
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    Cited by:

    1. Berson, Clémence & Ferrari, Nicolas, 2015. "Financial incentives and labour market duality," Labour Economics, Elsevier, vol. 37(C), pages 77-92.
    2. Joseph, G. & Pierrard, O. & Sneessens, H. R., 2004. "Job turnover, unemployment and labor market institutions," Labour Economics, Elsevier, vol. 11(4), pages 451-468, August.
    3. Olivier Pierrard & Henri Sneessens, 2004. "The European Labour Markets - Aggregate Unemployment and Relative Wage Rigidities," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 5(1), pages 19-23, October.
    4. Bernhard Boockmann, 2010. "The Combined Employment Effects of Minimum Wages and Labor Market Regulation—a Meta-Analysis," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 61(Supplemen), pages 167-188.
    5. Cahuc, Pierre & Malherbet, Franck, 2004. "Unemployment compensation finance and labor market rigidity," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 481-501, March.
    6. Addison, John T. & Ozturk, Orgul Demet, 2010. "Minimum Wages, Labor Market Institutions, and Female Employment and Unemployment: A Cross-Country Analysis," IZA Discussion Papers 5162, Institute for the Study of Labor (IZA).
    7. Fertig, Michael & Schmidt, Christoph M., 2000. "Discretionary Measures of Active Labor Market Policy: The German Employment Promotion Reform in Perspective," IZA Discussion Papers 182, Institute for the Study of Labor (IZA).
    8. International Monetary Fund, 2005. "France; Selected Issues," IMF Staff Country Reports 05/397, International Monetary Fund.
    9. L'Haridon, Olivier & Malherbet, Franck, 2002. "Unemployment Compensation Finance and Aggregate Employment Fluctuations," CEPR Discussion Papers 3614, C.E.P.R. Discussion Papers.
    10. Victoria Osuna & Jose-Ignacio García-Pérez, 2012. "The effects of introducing a single open-ended contract in Spain," EcoMod2012 3825, EcoMod.
    11. L'Haridon, Olivier & Malherbet, Franck, 2009. "Employment protection reform in search economies," European Economic Review, Elsevier, vol. 53(3), pages 255-273, April.
    12. Jianping Zhou, 2006. "Reforming Employment Protection Legislation in France," IMF Working Papers 06/108, International Monetary Fund.
    13. Charlot Olivier & Malherbet Franck, 2010. "Education and the welfare gains from employment protection," THEMA Working Papers 2010-04, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    14. Michele Belot & Jan Boone & Jan Van Ours, 2007. "Welfare-Improving Employment Protection," Economica, London School of Economics and Political Science, vol. 74(295), pages 381-396, August.
    15. Isabelle Méjean & Lise Patureau, 2007. "Location Decisions and Minimum Wages," Working Papers 2007-16, CEPII research center.
    16. Adriana D. Kugler, 2001. "From severance pay to self-insurance: Effects of severance payments savings accounts in Colombia," Economics Working Papers 592, Department of Economics and Business, Universitat Pompeu Fabra.
    17. Bonin, Holger & Zimmermann, Klaus F., 2000. "The Post-Unification German Labor Market," IZA Discussion Papers 185, Institute for the Study of Labor (IZA).
    18. Olivier Charlot, 2006. "Éducation, destruction des emplois et performance du marché du travail dans un modèle d'appariement," Revue économique, Presses de Sciences-Po, vol. 57(1), pages 5-33.
    19. Méjean, Isabelle & Patureau, Lise, 2010. "Firms' location decisions and minimum wages," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 45-59, January.

    More about this item

    JEL classification:

    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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