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

Listed author(s):
  • 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
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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  1. Gilles Saint-Paul, 1995. "The High Unemployment Trap," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 527-550.
  2. Fatás, Antonio, 1997. "EMU: Countries or Regions? Lessons from the EMS Experience," CEPR Discussion Papers 1558, C.E.P.R. Discussion Papers.
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  8. Davis, Steven J. & Henrekson, Magnus, 1995. "Industrial Policy, Employer Size and Economic Performance in Sweden," Working Paper Series 436, Research Institute of Industrial Economics.
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  13. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-793, August.
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  18. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
  19. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
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