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

Author

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  • 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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    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.

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    More about this item

    Keywords

    employment protection; training; hold-up; welfare.;
    All these keywords.

    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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