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Education and the Welfare Gains from Employment Protection

  • Charlot, Olivier

    ()

    (University of Cergy-Pontoise)

  • Malherbet, Franck

    ()

    (University of Rouen)

This paper studies the impact of an European-like labor market regulation on the return to schooling, equilibrium unemployment and welfare. We show that firing costs and temporary employment have opposite effects on educational choices. We furthermore demonstrate that a laissez faire economy with no regulation is inefficient as it is characterized by insufficient educational investments leading to excess job destruction and inadequate job creation. By stabilizing employment relationships, firing costs may spur educational investments and therefore lead to welfare and productivity gains, though a first-best policy would be to subsidize education. However, there is little chance for a dual labor market, as is common in many European countries, with heavily regulated long-term contracts and more flexible short-term contracts to raise the incentives to schooling and aggregate welfare.

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File URL: http://ftp.iza.org/dp4799.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4799.

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Length: 45 pages
Date of creation: Mar 2010
Date of revision:
Publication status: published as 'Education and Employment Protection' in: Labour Economics, 2013, 20, 3-23
Handle: RePEc:iza:izadps:dp4799
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References listed on IDEAS
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  1. Giuseppe Bertola, 2004. "A Pure Theory of Job Security and Labour Income Risk," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 43-61.
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  7. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  8. Farber, Henry S., 1999. "Mobility and stability: The dynamics of job change in labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 37, pages 2439-2483 Elsevier.
  9. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-49, November.
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  12. Hector Sala & Jose I. Silva & Manuel E. Toledo, 2007. "Flexibility at the margin and labor market volatility in OECD countries," Economics Working Papers we075832, Universidad Carlos III, Departamento de Economía.
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  15. Jacob Mincer, 1991. "Education and Unemployment," NBER Working Papers 3838, National Bureau of Economic Research, Inc.
  16. Charlot, Olivier & Decreuse, Bruno & Granier, Pierre, 2005. "Adaptability, productivity, and educational incentives in a matching model," European Economic Review, Elsevier, vol. 49(4), pages 1007-1032, May.
  17. Cahuc, Pierre & Postel-Vinay, Fabien, 2001. "Temporary Jobs, Employment Protection and Labor Market Performance," IZA Discussion Papers 260, Institute for the Study of Labor (IZA).
  18. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-60, September.
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  28. repec:fth:inseep:9938 is not listed on IDEAS
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