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Job security and training: the case of Pareto improving firing taxes

Author

Listed:
  • Andrea Ricci
  • Robert Waldmann

Abstract

This paper shows that the under-investment in firm financed training caused by hold up can justify the introduction of firing taxes in a laissez-faire economy with search frictions and risk neutral agents. More precisely we highlight two results. First, the introduction of a firing tax for newly hired workers combined with hiring subsidies, always acts as a Pareto improving policy. Second, with no hiring subsidies, the introduction of a firing tax for the newly hired always increase the welfare of employed while its impact on the welfare of unemployed depends on the returns to training. We also analyze the implications of such a policy if a minimum wage is binding for newly hired workers.

Suggested Citation

  • Andrea Ricci & Robert Waldmann, 2011. "Job security and training: the case of Pareto improving firing taxes," Quaderni del Dipartimento di Economia, Finanza e Statistica 91/2011, Università di Perugia, Dipartimento Economia.
  • Handle: RePEc:pia:wpaper:91/2011
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    References listed on IDEAS

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    1. Masanori Hashimoto & Ben T. Yu, 1980. "Specific Capital, Employmemt Contracts, and Wage Rigidity," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 536-549, Autumn.
    2. Micco, Alejandro & Pagés, Carmen, 2006. "The Economic Effects of Employment Protection: Evidence from International Industry-Level Data," IZA Discussion Papers 2433, Institute for the Study of Labor (IZA).
    3. Garibaldi, Pietro, 1998. "Job flow dynamics and firing restrictions," European Economic Review, Elsevier, vol. 42(2), pages 245-275, February.
    4. Hashimoto, Masanori, 1981. "Firm-Specific Human Capital as a Shared Investment," American Economic Review, American Economic Association, vol. 71(3), pages 475-482, June.
    5. Jens Suedekum & Peter Ruehmann, 2003. "Severance Payments and Firm-specific Human Capital," LABOUR, CEIS, vol. 17(1), pages 47-62, March.
    6. Booth, Alison L. & Zoega, Gylfi, 2003. "On the welfare implications of firing costs," European Journal of Political Economy, Elsevier, vol. 19(4), pages 759-775, November.
    7. Etienne Wasmer, 2006. "General versus Specific Skills in Labor Markets with Search Frictions and Firing Costs," American Economic Review, American Economic Association, vol. 96(3), pages 811-831, June.
    8. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-938, October.
    9. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
    10. Roberto M. Samaniego, 2006. "Employment Protection and High-Tech Aversion," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 224-241, April.
    11. Koeniger, Winfried, 2005. "Dismissal costs and innovation," Economics Letters, Elsevier, vol. 88(1), pages 79-84, July.
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    Cited by:

    1. Francesco Venturini, 2011. "Product variety, product quality, and evidence of Schumpeterian endogenous growth: a note," Quaderni del Dipartimento di Economia, Finanza e Statistica 93/2011, Università di Perugia, Dipartimento Economia.

    More about this item

    Keywords

    employment protection; training; hold-up; welfare.;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J8 - Labor and Demographic Economics - - Labor Standards

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