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Job Tenure Jigsaw: Why Is Employment Protection Bad for Labor Market Fluidity?

Author

Listed:
  • Mitsuru Katagiri

    (Associate Professor, Faculty of Commerce, School of Commerce, Waseda University (E-mail: mitsuru.katagiri@waseda.jp))

Abstract

This paper analyzes the macroeconomic effects of employment protection legislation (EPL) through workers' optimal human capital choices and the resulting changes in labor market fluidity. In a general equilibrium model, stringent EPL shifts investment from general to firmspecific human capital, reducing aggregate labor mobility across employers. Using Japanese microdata to discipline the model's human capital accumulation process, we show that although EPL increases overall human capital accumulation, the resulting decline in labor market fluidity lowers average matching efficiency and generates sizable output losses following structural changes that require labor reallocation.

Suggested Citation

  • Mitsuru Katagiri, 2026. "Job Tenure Jigsaw: Why Is Employment Protection Bad for Labor Market Fluidity?," IMES Discussion Paper Series 26-E-01, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:26-e-01
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    File URL: https://www.imes.boj.or.jp/research/papers/english/26-E-01.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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