What are the short-run effects of increasing labor market flexibility?
This paper evaluates the short-run effects of introducing labor market flexibility to an economy characterized by large firing taxes. Different reforms are considered: 1) eliminating all firing taxes, 2) introducing flexible new contracts while retaining the firing taxes on workers employed previous to the reform, and 3) introducing temporary contracts. The paper finds that eliminating all firing taxes increases the unemployment rate much more in the short run than in the long run, that introducing new flexible contracts has similar effects as eliminating all firing taxes, and that introducing temporary contracts of short durations can decrease the unemployment rate, but only in the short-run.
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- Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
- Veracierto, Marcelo, 2001.
"Employment Flows, Capital Mobility, and Policy Analysis,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 571-95, August.
- Marcelo Veracierto, 2000. "Employment flows, capital mobility, and policy analysis," Working Paper Series WP-00-5, Federal Reserve Bank of Chicago.
- Fernando Alvarez & Marcel Veracierto, 1998. "Search, self-insurance and job-security provisions," Working Paper Series WP-98-2, Federal Reserve Bank of Chicago.
- Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
- Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
- McCall, John J, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, MIT Press, vol. 84(1), pages 113-26, February.
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