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Short job tenures and firing taxes in the search theory of unemployment

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  • Gkionakis, Vasileios

Abstract

This paper studies the effects of firing taxes on the job destruction rate, when probation period - or temporary contract - policies are implemented in an otherwise exogenous job separation search model. It is shown that contrary to conventional wisdom, firing taxes can amplify the job turnover rate by providing incentives to destroy surviving matches at the end of the probation period. Moreover, low skill workers are shown to be more severely affected while wage inequality across different productivity groups may increase.

Suggested Citation

  • Gkionakis, Vasileios, 2004. "Short job tenures and firing taxes in the search theory of unemployment," LSE Research Online Documents on Economics 19964, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:19964
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    File URL: http://eprints.lse.ac.uk/19964/
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    References listed on IDEAS

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    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, March.
    2. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    3. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    4. Giuseppe BERTOLA & Tito BOERI & Sandrine CAZES, 2000. "Employment protection in industrialized countries: The case for new indicators," International Labour Review, International Labour Organization, vol. 139(1), pages 57-72, March.
    5. Alain Delacroix, 2003. "Transitions into Unemployment and the Nature of Firing Costs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 651-671, July.
    6. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 699-726.
    7. Pissarides, C A, 1984. "Efficient Job Rejection," Economic Journal, Royal Economic Society, vol. 94(376a), pages 97-108, Supplemen.
    8. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-690, September.
    9. Dale T. Mortensen, 1978. "Specific Capital and Labor Turnover," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 572-586, Autumn.
    10. Dale T. Mortensen, 1978. "Specific Capital, Bargaining, and Labor Turnover," Discussion Papers 320, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Labor market policies; Firing taxes; Probation period; Temporary contracts; Unemployment;

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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