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In many countries, labor courts play a central role in the determination of firing costs by monitoring and supervising the procedures for dismissals, and, eventually, deciding severance payments mandated by the employment protection legislation (EPL). To get some insights about the impact of labor courts on effective firing costs, we explore a new database that contains information on labor courts’ intervention in firings before and after the implementation of significant EPL reforms modifying severance payments and procedures for dismissals. Our results suggest that labor court rulings on economic dismissals did not fully translate the reduction of firing costs mandated by the new EPL to effective firing costs.

Using matched employer-employee data on the universe of mass layoffs in West Germany from 1980 to 2009, I characterize each of the 4,400 mass layoffs by the relative probabilities of displacement for different types of workers. I find substantial heterogeneity in layoff rules across establishments, with the most common types being based on relative tenure, relative wages, or occupation. Laying off workers with low tenure--which I interpret as a less selective layoff rule--has become less common, while laying off workers with low relative wages--which I interpret as a more selective layoff rule--has become more common. I also find an increase in wage-based layoffs and a decrease in tenure-based layoffs in recessions. In the second chapter, I test for asymmetric information in the labor market by studying how earnings losses of displaced workers vary with the degree of selection in employers' layoff decisions. I develop an asymmetric employer learning model with heterogeneous firing costs that implies that earnings losses are smaller for workers involved in tenure-based layoffs, since these layoffs do not serve as a negative signal of workers' productivity. I find strong support for this prediction: earnings losses are 20% smaller for workers displaced in tenure-based layoffs than observationally equivalent workers displaced in other layoffs. Selective layoffs are particularly costly for less-educated workers and workers in high-skilled service occupations, suggesting that asymmetric learning by incumbent employers is more prevalent for these groups.

In this paper, I review matching models of dual labor markets from a theoretical point of view and describe the consequences of the most common sets of assumptions on job creation. I assert that two poles arise in the literature depending on the modeling of fixed-term contracts. Some papers assume that fixed-term contracts are flexible in the sense that firm-worker matches may costlessly separate any time. Others assume that a fixed-term match is rigid and cannot split before reaching its stipulated termination date, regardless the undergone shocks. Modeling fixed-term contracts as utterly flexible tends to make fixed-term contracts the only vehicle of job creation, while open-ended contracts only appear as converted expiring fixed-term contracts. This counter-factual result encourages the use of ad hoc hiring rules that ensure that job creation involves both contracts. On the contrary, modeling fixed-term contracts as rigid makes fixed-term contracts less attractive and leaves more room for job creation to involve open-ended contracts. Substitution effects between contracts can be considered in these frameworks. I build up a model with rigid fixed-term contracts and heterogeneous productivity of matches assumption by assumption and find major robustness issues. Introducing the convertibility of fixed-term contracts into open-ended ones flips over the ranking of contracts at the hiring stage with respect to productivity. Enabling matches to optimize the average duration of fixed-term contracts leads to highly counter-factual results: the shortest and the least productive fixed-term matches have the highest probabilities to be converted to open-ended contracts. The highlighted robustness issues and counter-factual predictions contaminate recent papers studying labor market dualism and heterogeneity in workload fluctuations.

Cette thèse analyse l'effet de la législation de protection de l'emploi sur le taux de chômage, les salaires et la productivité des entreprises. En particulier, je m'intéresse dans cette thèse à l’effet de la réglementation des licenciements et des contrats de travail temporaires. Cette question de recherche est motivée par le fait que dans de nombreux pays de l’OCDE, la législation combine des coûts de licenciements élevés et des restrictions faibles sur les contrats temporaires, ce qui entraîne, d’après un certain nombre d’économistes, une segmentation du marché du travail. Le premier chapitre défend l’idée qu’il est important de comprendre les mécanismes qui expliquent le choix des entreprises de signer des contrats temporaires ou permanents afin d'évaluer l’effet de la protection de l’emploi. Ce chapitre analyse un problème de contrat dynamique entre un travailleur averse au risque et un employeur neutre vis-à-vis du risque. Dans ce chapitre, je soutiens notamment que le choix du type d'emploi est déterminé par un arbitrage entre les gains associés au partage du risque qu’offre un emploi permanent et les gains associés à la flexibilité qu’offre un emploi temporaire. Le deuxième chapitre construit un modèle du marché du travail caractérisé par des frictions de recherche et d’appariement, dans lequel le contrat dynamique du chapitre 1 est intégré. Je propose ainsi un modèle dans lequel l’allocation des agents au sein des différents types d’emplois est déterminée de façon endogène par des considérations reliées au partage du risque. Le modèle, calibré pour reproduire les caractéristiques du marché du travail en France durant les années 2000, suggère que les contrats temporaires ont tendance à augmenter la productivité des entreprises mais également le taux de chômage. Le dernier chapitre propose un modèle de cycle de vie visant à évaluer les effets des coûts de licenciement sur l’emploi et les salaires en fonction du niveau d’éducation et d’expérience. Le modèle est calibré sur les données d’enquête sur la main d’œuvre en France durant les années 2000. Une série d'expériences contrefactuelles indiquent que les coûts de licenciement ont un effet négatif sur l’emploi, concentré principalement sur les jeunes travailleurs avec un niveau d’éducation faible. En revanche, cet effet semble être négligeable pour les travailleurs avec un niveau d'expérience et d'éducation élevé., This thesis analyzes the effect of employment protection on labor market outcomes. The thesis focuses on the impact of firing restrictions and the regulation of temporary contracts. In many OECD countries, the employment protection legislation combines high firing restrictions and relatively lax regulation of temporary jobs which is, according to several economists, a source of labor market segmentation. The first chapter argues that analyzing the effect of employment protection requires to understand how economic agents choose between permanent and temporary contracts. This chapter examines a dynamic employment contract between a risk-averse worker and a risk-neutral firm. I argue in this chapter that the choice between a permanent and a temporary contract is driven by a trade-off between efficient risk-sharing and flexibility. The second chapter builds a model of the labor market with search frictions, in which the contracting problem of chapter 1 is embedded. Thus, this chapter proposes a model in which the allocation of agents into permanent and temporary jobs is endogenous to risk-sharing considerations. The model is calibrated to the features of the French labor market during the 2000s and indicates that temporary contracts tend to increase productivity but unemployment as well. The third chapter proposes a life-cycle model to evaluate the effect of firing costs across different experience and education groups. The model is calibrated using a French labor force survey dataset. Policy experiments suggest that firing costs have a negative effect on employment, which is concentrated on low experience and education workers.

We explore the role of firing costs on labor market outcomes in a search and matching framework with distinct decisions on the intensive (hours per employee) and extensive (employment) margins of labor supply. We show that allowing for two distinct labor supply margins matters for assessing firing costs. When the intensive margin is kept fixed (as is typically done in empirical work on firing costs), the dampening effect of firing costs on employment fluctuations is strongly understated. Further, in a quantitative exercise, we calibrate firing costs to represent the different employment protection regulations across OECD countries. We find that with firing costs of a similar size as in France, the drop in US employment during the Great Recession would have been a third its size.

In this study we leverage on Italy’s size-contingent firing restrictions in order to identify the causal effect of employment protection legislation (EPL) on firm-provided training using a regression discontinuity design. Our analysis demonstrates that higher levels of EPL reduce firms’ incentives to invest in workers’ training. The number of trained workers falls by about 1.5-1.9 units at the threshold: this is a non-negligible effect, corresponding to a 16-20 per cent reduction in the number of trained workers. The results are robust to several sensitivity checks and controls for potential confounding factors (e.g., worker councils). The EPL effect on training is not mediated by different levels of investment in physical capital or propensities to innovate, while it is mostly accounted for by larger workers’ turnover and use of temporary contracts, which entail lower training, in firms with higher firing costs. Our study points to potential adverse effects of EPL on workers’ training in dual labor markets, owing to larger firms seeking to avoid higher EPL costs by means of temporary contracts.

This paper provides evidence on the impacts of agricultural productivity on employment growth and structural transformation of non-farm activities. To guide the empirical work, this paper develops a general equilibrium model that emphasizes distinctions among non-farm activities in terms of tradable-non-tradable and the formal-informal characteristics. The model shows that when a significant portion of village income is spent on town/urban goods, restricting empirical analysis to the village sample leads to underestimation of agriculture's role in employment growth and transformation of non-farm activities. Using rainfall as an instrument for agricultural productivity, empirical analysis finds a significant positive effect of agricultural productivity growth on growth of informal (small-scale) manufacturing and skilled services employment, mainly in education and health services. For formal employment, the effect of agricultural productivity growth on employment is found to be largest in the samples that include urban areas and rural towns compared with rural areas alone. Agricultural productivity growth is found to induce structural transformation within the services sector with employment in formal/skilled services growing at a faster pace than that of low skilled services.

This article studies employment prospects of different types of job seekers in Croatia by upgrading the model of adverse selection with firing costs. Based on Labour Force Survey data for 1996–2006 we find the existence of adverse selection in the Croatian labour market. Reservation wage, as the main determinant of firing costs in the model, positively affects the probability of changing job for employed job seekers, while it has a negative impact on the probability of ‘switching’ for unemployed job seekers. However, if reservation wage is treated as endogenous in the model, instrumental variable estimation shows that its effect on the probability of ‘switching’ becomes positive and significant only for the unemployed group. This is explained by the effect of educational attainment, which serves as the ‘instrument’ and obviously works as an efficient signal for workers' productivity among the unemployed. Nevertheless, the effect of reservation wage on employment probabilities for both groups is declining over time, especially after the legislative reform in 2004, indicating a lower impact of firing costs. Finally, the hypothesis on self-discrimination of the unemployed receiving unemployment benefits is tested, showing a positive impact of unemployment benefits on the reservation wage and a negative one on the probability of finding a job.

Unemployment insurance replacement rates world-wide are well below 100 percent, a fact often attributed to search moral hazard concerns. As Blanchard and Tirole (2008) have illustrated, however, neither search nor layoff moral hazard (firing cost) distortions need arise in first-best insurance plans. Their counterexample depends on the functional form of the state utility function--utility with a single argument, consumption plus monetized leisure. The monetized leisure model is unattractive if leisure is a choice variable, however, and a review of the optimal UI literature reveals a surprising variety of alternative utility function assumptions. A standard neoclassical utility function is used to characterize the utility function conditions required to generate moral-hazard-free (MHF) first-best contracts. Two conditions emerge: (i) the necessary condition that leisure and consumption be substitutes (the cross-derivative of consumption and leisure be negative) and (ii) the sufficient condition that leisure be an inferior good, Rosen (1985). Leisure appears to be a normal good, which rules out the possibility of first-best moral-hazard-free (FB MHF) utility structures, but the first-best UI replacement rate remains very much an open question. The rich empirical literature on the "retirement consumption paradox" suggests that the rate is below 100 percent, easing moral hazard concerns, if not eliminating them.

This paper analyzes recent trends in Swedens labor market regulations in relation to comparator economies and examines the relationship between labor market regulations and outcomes. The paper finds that the Swedish labor market responded more rapidly to the recent global financial crisis than the majority of the European Union economies, which helped Sweden to recover quickly. Swedens hiring regulations are more flexible than those of many comparator economies, however, fixed-term contracts of short duration might have adverse consequences for the economy. In addition, Swedens regulations on work during the weekly holidays and mandatory paid annual leave are stricter than those of the majority of comparator economies. Moreover, among the economies of the Organisation for Economic Co-operation and Development, Sweden has one of the largest differences in employment protection between permanent and temporary employees, which could lead to a segmented labor market, where insiders enjoy high job security and outsiders are largely marginalized. This could be cause for concern, given that Sweden has a higher share of involuntary temporary workers among youth and involuntary part-time workers than both the Nordic and European Union averages. While protecting employees is important, excessive protection, particularly if it differs across different types of employment contracts, has been shown to have adverse effects on welfare and economic performance.

Do institutional firing costs slow the diffusion of information and communications technology (ICT)? The paper develops a model in which, as the technology at a given plant drops behind the best practice, it optimally reduces its workforce. As a result, firing costs are particularly detrimental to profits in industries in which the rate of technical change is rapid - such as ICT - and countries with high firing costs specialize in industries in which technical change is sluggish. The paper suggests that industry composition is a new channel through which labor market regulation might impact macroeconomic aggregates. (Copyright: Elsevier)

We analyze the consequences of an increase in the supply of highly educated workers on relative and real wages in a search model where wages are set by Nash bargaining. A key insight is that an increase in the average education level exerts a negative externality on wages through its positive externality on the firms’ outside option. As a consequence, the real wage of all workers decreases in the short run. Since this decline is more pronounced for less educated workers, wage inequality increases. In the long-run a better educated work force induces firms to invest more in physical capital. Wage inequality and real wages of highly educated workers increase while real wages of less educated workers may decrease. These results are consistent with the US experience in the 1970s and 1980s. Based upon differences in legal employment protection we also provide an explanation for the diverging evolution of real and relative wages in Continental Europe.

We study the effects of firing taxes on labor market outcomes. These taxes, more common in European markets, include all administrative and procedural costs incurred by the firm. As such, they are independent of the dismissed worker's skill level. We establish that, for young workers, unemployment incidence increases with skill in high-firing-tax countries, while the opposite holds in economies with low firing taxes. The model is able to replicate these observations, while maintaining unemployment duration and the unemployment rate as decreasing functions of skill in all countries. Because of constant firing taxes, the effective tax rate diminishes with skill. Hence, the size of job destruction costs decreases with skill. Also, high-skill vacancies are more profitable, implying tighter markets. These two reasons generate the skill-incidence pattern. (Copyright: Elsevier)

We study the effects of employment protection taking into account that firms can invest in R&D or buy new technologies in order to restore their productivity. To do so we develop an equilibrium matching model with an imperfect labor and innovation market. If employment protection is introduced, firms' willingness to pay for product or process innovations increases. This shifts economic activity towards firms specializing in process and product innovation and triggers entry of new start-ups. We calibrate our model to match aggregate US labor and product market statistics and show that our model generates the estimated negative impact of wrongful dismissal laws in the US on productivity and the positive effect on the number of innovations and firms.

This paper evaluates the effects of a labor market reform in Spain that removedrestrictions on fixed-term or temporary contracts. Our empirical results are based onlongitudinal firm-level data that cover observations before and after the reform. Weposit and estimate a dynamic labor demand model with indefinite and fixed-term laborcontracts, and a general structure of labor adjustment costs. Experiments using theestimated model show important positive effects of the reform on total employment(i.e., a 3.5% increase) and job turnover. There is a strong substitution of permanentby temporary workers (i.e., a 10% decline in permanent employment). The effects onlabor productivity and the value of firms are very small. In contrast, a counterfactualreform that halved all firing costs would produce the same employment increase as theactual reform, but much larger improvements in productivity and in the value of firms. The second author acknowledges research funding from the Spanish Ministry of Finance and Competitiveness, Grant no. ECO2012-31358

Although labor market duality is a widespread phenomenon in many OECD countries, there is yet no research consent on the effects of duality on labor market dynamics and performance. Against this background, using a New Keynesian model with unemployment, this paper theoretically investigates the importance of labor market duality on labor market volatilities. The new insight is that duality leads to a non-linear reaction of unemployment volatility for both supply and demand shocks. A subsequent empirical panel data analysis confirms the model predictions. Uncovering the non-linearity in unemployment volatility helps reconciling previous divergent research results.

© 2018, Springer Science+Business Media, LLC, part of Springer Nature. This study estimates the stigma effect of unemployment and overeducation within one framework. We conduct a randomised field experiment in which we send out trios of fictitious job applications, from male candidates with no relevant work experience, to real vacancies. One candidate graduated just a few months before the application, the two others graduated a year earlier and had been unemployed or underemployed since that time. By monitoring the subsequent callback, we find evidence of a larger stigma effect of unemployment than overeducation. The stigma effect of overeducation is found to occur for permanent contract jobs but not for temporary ones. ispartof: De Economist vol:167 issue:1 pages:1-21 status: published