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Financial incentives and labor market duality

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  • Clémence Berson

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

  • Nicolas Ferrari

    (Direction Générale du Trésor)

Abstract

The French labor market is divided between workers in permanent jobs and those who alternate fixed-term contracts with unemployment spells. Among other public policies aiming at reducing this duality, financial incentives could induce employers to lengthen contract duration or favor permanent contracts. This article develops a matching model fitted to the French labor-market characteristics and calibrated on French data. A gradual decrease in unemployment contributions or a firing tax reduces the duality but increases market rigidity and lowers labor productivity. However, decreasing unemployment contributions gradually is less favorable for new entrants than a firing tax and lengthens unemployment spells. An additional contribution levied on short-term contracts to finance a bonus for permanent-contract hirings also decreases labor-market duality and increases activity but without negative impacts on labor-market flexibility and productivity.

Suggested Citation

  • Clémence Berson & Nicolas Ferrari, 2014. "Financial incentives and labor market duality," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01110663, HAL.
  • Handle: RePEc:hal:cesptp:halshs-01110663
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01110663
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    References listed on IDEAS

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    Cited by:

    1. Cahuc, Pierre & Charlot, Olivier & Malherbet, Franck & Benghalem, Helène & Limon, Emeline, 2016. "Taxation of Temporary Jobs: Good Intentions with Bad Outcomes?," IZA Discussion Papers 10352, Institute of Labor Economics (IZA).
    2. C. Berson & N. Ferrari, 2016. "What policy to reduce labour market segmentation?," Rue de la Banque, Banque de France, issue 35, december..
    3. repec:kap:decono:v:166:y:2018:i:4:d:10.1007_s10645-018-9318-y is not listed on IDEAS

    More about this item

    Keywords

    public policies; duality; segmentation; politiques publiques;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy

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