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On the Efficiency of Job and Income Protection in the Dynamic Labour Markets

  • Juha Kilponen

This paper investigates the efficiency implications of two kinds of worker protection, namely job security and income protection. Both of them have important aggregate efficiency effects in the dynamic labour markets, where worker mobility is costly. In the absence of firing costs, income security has ambiguous effect on production efficiency. If mobility costs are very high, dynamic costs associated to reallocation outweighs a gain from static efficiency as more jobs are created into high productivity sector, but need to reallocated always when the sector is hit by a negative productivity shock. On the contrary, if mobility costs are low a static efficiency outweighs a dynamic costs associated to reallocation. Employment protection is also more costly in terms of productive efficiency, more it involves wasted administrative and red- tape costs for the firms.

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File URL: http://econwpa.repec.org/eps/lab/papers/0509/0509008.pdf
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Paper provided by EconWPA in its series Labor and Demography with number 0509008.

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Length: 40 pages
Date of creation: 16 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwpla:0509008
Note: Type of Document - pdf; pages: 40
Contact details of provider: Web page: http://econwpa.repec.org

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