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Multiple equilibria in a firing game with impartial justice

  • Damien Besancenot

    ()

    (CEPN - Centre d'Economie de l'Université de Paris Nord (ancienne affiliation) - Université Paris XIII - Paris Nord - CNRS : UMR7115)

  • Radu Vranceanu

    ()

    (Economics Department - ESSEC Business School)

In many European countries, a majority of employees are hired under very protective labor contracts thatrestrict the ability of the employer to dismiss them. In particular, employees can take to courts the firm'slayoff motive. Given the high costs specific to so-called economic motives and judges' limited ability toprocess an ever growing flow of cases, in the last few years firms have been tempted to invoke faked personalmotives for firing "good" workers. This paper shows that the interaction between firms, employees andthe labor judicial system is consistent with multiple equilibria. Hence firing costs depend not only onvariables under the control of the government, but also on the nature of the equilibrium. Policies aimingat increasing flexibility, interpreted as a reduction in firing costs, should consider the possibility of shiftingfrom a high to a low firing costs equilibrium.

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Paper provided by HAL in its series CEPN Working Papers with number halshs-00203176.

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Date of creation: 09 Jan 2008
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Handle: RePEc:hal:cepnwp:halshs-00203176
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00203176
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  1. Levy, Gilat, 2003. "Careerist Judges," CEPR Discussion Papers 3948, C.E.P.R. Discussion Papers.
  2. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  3. 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.
  4. Andrea Ichino & Michele Polo & Enrico Rettore, . "Are Judges Biased by Labor Market Conditions?," Working Papers 192, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, June.
  6. Pierre Cahuc & Winfried Koeniger, 2007. "Feature: Employment Protection Legislation," Economic Journal, Royal Economic Society, vol. 117(521), pages 185-188, 06.
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