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Threshold Effects of Dismissal Protection Regulations and Employment Dynamics

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  • Yu-Fu Chen
  • Michael Funke

Abstract

Labour market regulations aimed at enhancing job-security are dominant in several OECD countries. These regulations seek to reduce dismissals of workers and fluctuations in employment. The main theoretical contribution is to gauge the effects of such regulations on labour demand across establishment sizes. In order to achieve this, we investigate an optimising model of labour demand under uncertainty through the application of real option theory. The calibration results indicate that labour market rigidities may be crucial for understanding sluggishness in firms´ labour demand across plant sizes in continental Europe.

Suggested Citation

  • Yu-Fu Chen & Michael Funke, 2006. "Threshold Effects of Dismissal Protection Regulations and Employment Dynamics," Dundee Discussion Papers in Economics 195, Economic Studies, University of Dundee.
    • Handle: RePEc:dun:dpaper:195
    as

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    File URL: http://www.dundee.ac.uk/media/dundeewebsite/economicstudies/documents/discussion/DDPE_195.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Labour Demand; Dismissal Protection Legislation; Firing Costs; Real Options;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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