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Firing Costs: Eurosclerosis or Eurosuccesses?

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  • Chen, Yu-Fu
  • Snower, Dennis J.
  • Gylfi, Zoega

Abstract

In this paper we analyse the employment implications of firing restrictions. We find that when a recession is expected and the trend rate of productivity growth is small, a rise in firing costs affects mainly the hiring decision. Thus there is a negative effect on average employment. When, on the other hand, a boom is expected and the rate of productivity growth is large, firing costs affect mainly the firing decision. Then, as a result, average employment is increased. Our analysis suggests that while firing restrictions might have stimulated employment and reduced unemployment in Europe in the first two decades following World War II - when large supply shocks were absent and the average rate of growth was high - these same restrictions may have had the opposite effects in the 1970s and 1980s, when significant negative supply shocks occured.

Suggested Citation

  • Chen, Yu-Fu & Snower, Dennis J. & Gylfi, Zoega, 1999. "Firing Costs: Eurosclerosis or Eurosuccesses?," HWWA Discussion Papers 78, Hamburg Institute of International Economics (HWWA).
    • Handle: RePEc:zbw:hwwadp:26177
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    References listed on IDEAS

    as
    1. Díaz-Vázquez, María del Pilar & Snower, Dennis J., 1996. "Employment, Macroeconomic Fluctuations and Job Security," CEPR Discussion Papers 1430, C.E.P.R. Discussion Papers.
    2. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 699-726.
    3. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 381-402.
    4. M. Pilar Diaz & Dennis Snower, 1996. "Employment, Macroeconomic Fluctuations and Job Security. Employment, Macroeconomic Fluctuations and Job Security," Archive Discussion Papers 9611, Birkbeck, Department of Economics, Mathematics & Statistics.
    5. Daniel Cohen & Arnaud Lefrance & Gilles Saint-Paul, 1997. "French unemployment: a transatlantic perspective," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 12(25), pages 266-291.
    6. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    7. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June.
    8. Maddison, Angus, 1987. "Growth and Slowdown in Advanced Capitalist Economies: Techniques of Quantitative Assessment," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 649-698, June.
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    Cited by:

    1. Assar Lindbeck & Dennis J. Snower, 2001. "Insiders versus Outsiders," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 165-188, Winter.
    2. Chen, Yu-Fu & Zoega, Gylfi, 2010. "An essay on the generational effect of employment protection," Mathematical Social Sciences, Elsevier, vol. 59(3), pages 349-359, May.
    3. Yu-Fu Chen & Gylfi Zoega, 2007. "Aging and Job Security," Dundee Discussion Papers in Economics 206, Economic Studies, University of Dundee.
    4. Yu-Fu Chen & Gylfi Zoega, 1999. "Firing The Young Or The Old: A Non-perpetual Real Options Analysis," Dundee Discussion Papers in Economics 096, Economic Studies, University of Dundee.

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    More about this item

    Keywords

    stochastic demand; hiring and firing; real options; firing restrictions;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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