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What are the short-run effects of increasing labor market flexibility?

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  • Marcelo Veracierto

Abstract

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.

Suggested Citation

  • Marcelo Veracierto, 2000. "What are the short-run effects of increasing labor market flexibility?," Working Paper Series WP-00-29, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-00-29
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    File URL: http://www.chicagofed.org/digital_assets/publications/working_papers/2000/wp2000_29.pdf
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    References listed on IDEAS

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    1. 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 571-595, August.
    2. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, Oxford University Press, vol. 84(1), pages 113-126.
    3. 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.
    4. 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 915-938, October.
    5. Fernando Alvarez & Marcelo Veracierto, 1998. "Search, self-insurance and job-security provisions," Working Paper Series WP-98-2, Federal Reserve Bank of Chicago.
    6. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
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    Cited by:

    1. Yang, Guanyi, 2017. "General Equilibrium Evaluation of Temporary Employment," MPRA Paper 80047, University Library of Munich, Germany.
    2. Alonso-Borrego, César & Fernández-Villaverde, Jesús & Galdon-Sanchez, Jose Enrique, 2004. "Evaluating Labor Market Reforms: A General Equilibrium Approach," IZA Discussion Papers 1129, Institute for the Study of Labor (IZA).
    3. Luca Nunziata & Stefano Staffolani, 2001. "On Short-Term Contracts Regulations," Economics Papers 2001-W7, Economics Group, Nuffield College, University of Oxford.

    More about this item

    Keywords

    Labor market ; Temporary employees ; Labor contract;

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