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Aging and Job Security

Author

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  • Yu-Fu Chen
  • Gylfi Zoega

Abstract

We model a firm’s choice as to the age composition of dismissed workers for different assumptions about the level of firing costs. We find that when the cost of firing is independent of age, a higher level of firing costs will induce firms to fire their younger workers while lower costs induce them to fire the older ones. A corresponding effect is not found in the age dimension of the hiring decision. It follows that job protection favours more senior workers even when the cost of firing is independent of age and seniority.

Suggested Citation

  • Yu-Fu Chen & Gylfi Zoega, 2007. "Aging and Job Security," Dundee Discussion Papers in Economics 206, Economic Studies, University of Dundee.
  • Handle: RePEc:dun:dpaper:206
    as

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    File URL: http://www.dundee.ac.uk/media/dundeewebsite/economicstudies/documents/discussion/DDPE_206.pdf
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    References listed on IDEAS

    as
    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, June.
    2. Chen, Yu-Fu & Snower, Dennis J. & Gylfi, Zoega, 1999. "Firing Costs: Eurosclerosis or Eurosuccesses?," HWWA Discussion Papers 78, Hamburg Institute of International Economics (HWWA).
    3. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
    4. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters,in: Theory Of Valuation, chapter 8, pages 229-288 World Scientific Publishing Co. Pte. Ltd..
    5. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 699-726.
    6. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
    7. Yu-Fu Chen & Gylfi Zoega, "undated". "On The Effectiveness Of Firing Costs," Dundee Discussion Papers in Economics 087, Economic Studies, University of Dundee.
    8. James L. Paddock & Daniel R. Siegel & James L. Smith, 1988. "Option Valuation of Claims on Real Assets: The Case of Offshore Petroleum Leases," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 479-508.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Age-structure; tenure; firing decisions; real options;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms

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