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Job Creation, Job Destruction and the Life Cycle

Author

Listed:
  • Arnaud Cheron
  • Jean-Olivier Hairault
  • Francois Langot

    ()

Abstract

This paper originally incorporates life-cycle features into the job creation - job destruction framework. Once a finite horizon is introduced, this workhorse labor market model naturally delivers the empirically uncontroversial prediction that the employment rate of workers decreases with age due to lower hirings and higher firings of older workers. This age profile of hirings and firings is in addition found to be optimal in a competitive search equilibrium context. If search externalities are not internalized and unemployment benefits distort equilibrium, there is a room for labor market policy differentiated by age. This lastly allows us to debate the incidence of labor demand policies which have been introduced in many countries to favor the older worker employment. We show that hiring subsidies and firing costs should be decreasing with age when unemployment benefits are sufficiently high, as in the Europe. On the contrary, if unemployment benefits are low, as in the US, optimal hiring subsidies and firing taxes should be increasing with age. In this latter case, the introduction of anti-discrimination laws is a good proxy of this first best policy.

Suggested Citation

  • Arnaud Cheron & Jean-Olivier Hairault & Francois Langot, 2006. "Job Creation, Job Destruction and the Life Cycle," 2006 Meeting Papers 641, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:641
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    File URL: http://repec.org/sed2006/up.24964.1140025606.pdf
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    References listed on IDEAS

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    1. Jonathan Gruber & David A. Wise, 1999. "Introduction to "Social Security and Retirement around the World"," NBER Chapters,in: Social Security and Retirement around the World, pages 1-35 National Bureau of Economic Research, Inc.
    2. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
    3. Hellerstein, Judith K & Neumark, David & Troske, Kenneth R, 1999. "Wages, Productivity, and Worker Characteristics: Evidence from Plant-Level Production Functions and Wage Equations," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 409-446, July.
    4. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
    5. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, April.
    6. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    7. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Job creations and destructions; Life cycle; Older workers;

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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    1. Recursive Macroeconomic Theory

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