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Threshold Effects of Dismissal Protection Regulation and the Emergence of Temporary Work Agencies

  • Yu-Fu Chen
  • Michael Funke

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. We also consider other forms of employment which increase the flexibility of the labour market. In particular, we are modelling the contribution of temporary employment agencies (Zeitarbeit) allowing for quick personnel adjustments in client firms. The calibration results indicate that labour market rigidities may be crucial for understanding sluggishness in firms´ labour demand and the emergence and growth of temporary work.

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File URL: http://www.dundee.ac.uk/media/dundeewebsite/economicstudies/documents/discussion/DDPE_207.pdf
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Paper provided by Economic Studies, University of Dundee in its series Dundee Discussion Papers in Economics with number 207.

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Length: 25 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:dun:dpaper:207
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  1. Yu-Fu Chen & Michael Funke, 2004. "Working Time and Employment under Uncertainty," Quantitative Macroeconomics Working Papers 20409, Hamburg University, Department of Economics.
  2. Orszag, Mike & Snower, Dennis J., 1998. "Anatomy of policy complementarities," Open Access Publications from Kiel Institute for the World Economy 2252, Kiel Institute for the World Economy (IfW).
  3. Yu-Fu Chen & Michael Funke, 2008. "Product Market Competition, Investment and Employment-Abundant versus Job-Poor Growth: A Real Options Perspective," Quantitative Macroeconomics Working Papers 20802, Hamburg University, Department of Economics.
  4. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 691-721.
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