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From Dual to Unified Employment Protection: Transition and Steady State

Author

Listed:
  • Dolado, Juan J.

    () (European University Institute)

  • Lalé, Etienne

    () (University of Québec at Montréal)

  • Siassi, Nawid

    () (University of Konstanz)

Abstract

This paper analyses the optimal design of a single open-ended contract (SOEC) and studies the political economy of moving towards such a SOEC in a labour market where employment protection is highly discontinuous. We develop a computationally tractable approach to compare two economic environments: one with a large employment protection gap after a short tenure, and another one with a SOEC featuring a smooth tenure profile. For illustrative purposes, we specialise the discussion of such choices to Spain, a country often considered as an epitome of a labour market with dual employment protection. We show that a SOEC has the potential of bringing substantial improvements in equilibrium allocations and welfare. We provide estimates for the eligibility rule and tenure profile of the optimal SOEC, defined as the contract maximising the steady-state lifetime utility of new labour-market entrants. Finally, we use the model to identify winners and losers among younger and older workers in the transitional path of such a reform, and evaluate its political support.

Suggested Citation

  • Dolado, Juan J. & Lalé, Etienne & Siassi, Nawid, 2016. "From Dual to Unified Employment Protection: Transition and Steady State," IZA Discussion Papers 9953, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp9953
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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 for the Study of Labor (IZA).
    2. Cristina Lafuente, 2017. "Search capital and Unemployment Duration (Preliminary)," ESE Discussion Papers 283, Edinburgh School of Economics, University of Edinburgh.

    More about this item

    Keywords

    single contract; employment protection; dualism; labour market reform;

    JEL classification:

    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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