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Employment Protection Reform in Search Economies

Author

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  • Olivier L'Haridon

    (GREG-HEC and University Paris Sorbonne)

  • Franck Malherbet

    () (THEMA - CNRS - Université de Cergy-Pontoise, IZA and fRDB)

Abstract

The design of employment protection legislation (EPL) is of particular importance in the European debate on the contours of labor market reform. In this article we appeal to an equilibrium unemployment model to investigate the virtues of EPL reform which reduces the red tape and legal costs associated with layoffs and introduces a U.S.-style experience- rating system, which we model as a combination of a layoff tax and a payroll subsidy. The reform considered shows that it is possible to improve the efficiency of employment protection policies without affecting the extent of worker protection on the labor market. These results are consistent with the conventional wisdom that experience rating is desirable, not only as an integral component of unemployment-compensation finance, as most studies acknowledge, but also as part and parcel of a virtuous EPL system.

Suggested Citation

  • Olivier L'Haridon & Franck Malherbet, 2008. "Employment Protection Reform in Search Economies," THEMA Working Papers 2008-26, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  • Handle: RePEc:ema:worpap:2008-26
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    References listed on IDEAS

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    Cited by:

    1. Samuel Bentolila & Pierre Cahuc & Juan Jose Dolado & Thomas Le Barbanchon, 2010. "Two-Tier Labor Markets in the Great Recession: France vs. Spain," CESifo Working Paper Series 3269, CESifo Group Munich.
    2. Julien Albertini & Xavier Fairise, 2009. "Search frictions, real wage rigidities and theoptimal design of unemployment insurance: a study in a DSGE framework," Documents de recherche 09-03, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    3. Frédéric Gavrel, 2018. "The magic of layoff taxes requires equilibrium stability," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 404-411, April.
    4. Frédéric Gavrel, 2017. "The Magic of Layoff Taxes Requires Equilibrium Stability," Working Papers halshs-01462917, HAL.
    5. Launov, Andrey & Wälde, Klaus, 2016. "The employment effect of reforming a public employment agency," European Economic Review, Elsevier, vol. 84(C), pages 140-164.
    6. Julien Albertini & Xavier Fairise, 2009. "Optimal unemployment benefit financing scheme : A transatlantic comparison," Documents de recherche 09-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    7. Besancenot, Damien & Vranceanu, Radu, 2009. "Multiple equilibria in a firing game with impartial justice," Labour Economics, Elsevier, vol. 16(3), pages 262-271, June.
    8. Pierre Cahuc & Olivier Charlot & Franck Malherbet, 2016. "Explaining The Spread Of Temporary Jobs And Its Impact On Labor Turnover," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57, pages 533-572, May.
    9. Ratner, David, 2013. "Unemployment Insurance Experience Rating and Labor Market Dynamics," Finance and Economics Discussion Series 2013-86, Board of Governors of the Federal Reserve System (U.S.).
    10. Albertini, Julien & Fairise, Xavier, 2013. "Search frictions, real wage rigidities and the optimal design of unemployment insurance," Journal of Economic Dynamics and Control, Elsevier, vol. 37(9), pages 1796-1813.
    11. Launov, Andrey & Wälde, Klaus, 2014. "Thumbscrews for Agencies or Individuals? How to reduce unemployment," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100558, Verein für Socialpolitik / German Economic Association.
    12. Andrey Launov & Klaus Wälde, 2013. "Thumbscrews for Agencies or for Individuals? How to Reduce Unemployment," Working Papers 1307, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 01 Sep 2013.
    13. Dennis Wesselbaum, 2015. "Firing costs in a business cycle model with endogenous separations," Journal of Economic Studies, Emerald Group Publishing, vol. 42(3), pages 499-518, August.
    14. Damien Besancenot & Radu Vranceanu, 2008. "Multiple equilibria in a firing game with impartial justice," Working Papers halshs-00203176, HAL.
    15. Michau, Jean-Baptiste, 2015. "Optimal labor market policy with search frictions and risk-averse workers," Labour Economics, Elsevier, vol. 35(C), pages 93-107.
    16. Samuel Bentolila & Pierre Cahuc & Juan José Dolado & Thomas Le Barbanchon, ., 2010. "Unemployment and Temporary Jobs in the Crisis: Comparing France and Spain," Working Papers 2010-07, FEDEA.
    17. Saltari, Enrico & Tilli, Riccardo, 2009. "The role and significance of endogenous firing costs in a matching model with endogenous job destruction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(5), pages 799-808, October.
    18. Wesselbaum, Dennis, 2009. "Firing costs in a New Keynesian model with endogenous separations," Kiel Working Papers 1550, Kiel Institute for the World Economy (IfW).
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    More about this item

    Keywords

    Search and Matching Models; Employment Protection; State-Contingent Layoff Tax; Experience-Rating;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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