Purpose
– The purpose of this paper is to introduce productivity-dependent firing costs into an otherwise standard endogenous separations matching model. The authors suggest an alternative to the ...standard fix cost approach and account for empirical evidence emphasizing that firing costs vary across workers. The authors show that the model with firing costs outperformes the model without firing costs and replicates the empirical facts fairly well. Furthermore, the authors present cross-country evidence that countries with stricter employment protection have a weaker Beveridge curve relation and surprisingly more volatile job flow rates.
Design/methodology/approach
– The authors begin the analysis at the intersection of labor and product markets. For this purpose, the authors derive a real business cycle model with search and matching frictions and endogenous separations. The authors enrich this set-up by introducing productivity-dependent firing costs.
Findings
– The authors show that the model with firing costs outperformes the model without firing costs and replicates the empirical facts fairly well. Furthermore, the authors present cross-country evidence that countries with stricter employment protection have a weaker Beveridge curve relation and surprisingly more volatile job flow rates.
Originality/value
– This paper introduces productivity-dependent firing costs into an otherwise standard endogenous separations matching model. The authors suggest an alternative to the standard fix cost approach and account for empirical evidence emphasizing that firing costs vary across workers. The authors show that the model with firing costs outperformes the model without firing costs and replicates the empirical facts fairly well. Furthermore, the authors present cross-country evidence that countries with stricter employment protection have a weaker Beveridge curve relation and surprisingly more volatile job flow rates.
Courts are an important element in the institutional framework of labor markets, often determining the degree of employment protection. German labor courts provide a vivid example in this regard. ...However, we know relatively little about court behavior. A unique dataset on German labor court verdicts reveals that social and other criteria like employee characteristics, the type of job, local labor market conditions and court composition influence court decisions. At least as striking is that workers’ chances to win depend on where and when their cases are filed. This generates considerable ex ante uncertainty about outcomes.
We study the relation between international trade and the gains to reform labor markets by removing firing restrictions. We find that trade linkages imply substantially smaller benefits to reform ...than those calculated in the closed economy general equilibrium model of Hopenhayn and Rogerson Hopenhayn, Hugo, Rogerson, Richard, 1993. Job Turnover and policy evaluations: a general equilibrium analysis. Journal of Political Economy 101 (5), 915–938 October. When economies trade, labor market policies in one country spill over to other countries through their effect on the terms of trade. A key finding in the open economy is that the share of the welfare gains from domestic labor market reform exported substantially exceeds the share of goods exported. Thus, with international trade, a country retains little to no benefit from unilaterally reforming its labor market. A coordinated elimination of firing taxes yields considerable benefits. We also find that the U.K. benefits from labor market reform by its continental trading partners. These insights provide some explanation for recent efforts toward labor market reform in the European Union.
The recent Great Recession had very heterogeneous effects on the labor market outcomes in industrialized countries. We analyze the role of three labor market institutions in this context, namely the ...level of firing costs, the existence of short-time work and the wage formation process. This paper combines two different perspectives, a structural dynamic model perspective and an empirical cross-country perspective. Using the Lechthaler, Merkl, and Snower (2010) model, we first simulate the effects of the three labor market institutions during a recession. Using the panel of the EU-15 countries without Luxembourg, we then test the predictions of the model. Indeed, we find evidence that the three labor market institutions can partially explain the different labor market reactions across countries during the Great Recession. However, further empirical research is needed, as more data can be expected to become available, especially with respect to the use of short-time work in different countries. Comment by Claus Schnabel.
Reforming Severance Pay Robert Holzmann, Milan Vodopivec
2012, 2011, 11-09-2011, 20120101
eBook, Book
Open access
Throughout the developed and developing world there is growing demand for policies that would facilitate access to jobs by the most vulnerable, improve their earnings, and reduce their dependency on ...public support. As a result, governments are increasingly focused on removing obstacles faced by employers to create jobs and on instilling incentives for individuals to re-enter the labor market or to move toward more productive employment possibilities. Severance pay a program compensating formal workers for dismissal by employers or with an end-of-service benefit is often blamed for distorting employer hiring and firing decisions. Together with restrictive labor market regulations and other formal labor market features, this program is held responsible for excessive job protection with a negative impact on labor market outcomes, in particular affecting the most vulnerable. Despite this strong negative assessment among many labor market economists, surprisingly little is known about this program that exists in most countries around the world as a legally mandated benefit. This lack of knowledge may derive from the special 'positioning' of the program between labor code and social insurance; its origins were in the first policy domain, but its objectives for key programs were replicated in the second domain in particular unemployment and retirement benefits. This is the first-ever book to shed light on this program in a comprehensive manner its historical origins, its rationale, and its characteristics across the world. It reviews the soundness of the empirical accusation, assesses recent country reforms, and offers policy reform alternatives and policy guidance. The policy directions include folding severance pay into existing social insurance programs, where they exist, and to make severance pay contractual between market partners as a way to enhance efficiency in a knowledge-based economy. Folding severance pay into employment benefits may also be an opportunity to move away from unemployment insurance, which is fraught by moral hazard, toward a promising 'hybrid' system of unemployment insurance savings accounts supplemented by social pooling.
Contingent worksharing Piccirilli, Giulio
Research in economics,
06/2009, Volume:
63, Issue:
2
Journal Article
Peer reviewed
In a setting that focuses on efficient dynamic hours-workers substitution we show that contingent worksharing contributes to worker retention during bad business spells and to sustained hiring during ...good spells. As a consequence, average employment increases on both accounts. We also show that worksharing interacts with firing costs in affecting workforce decisions and determines the sign of the employment impact from an increase in firing restrictions.
Purpose
– The purpose of this paper is to compare two elements of lay-off costs in a dynamic model of the labor market and analyze the differences for business cycle dynamics and welfare.
...Design/methodology/approach
– The paper builds a general equilibrium Real Business Cycle model and introduces firing costs and severance payments. Labor market frictions are assumed to follow the famous search and matching approach.
Findings
– The paper finds that firing costs imply a higher volatility over the cycle and have stronger negative welfare effects. Severance payments have a lower volatility, reduce unemployment, and reduce welfare by a smaller amount.
Practical implications
– Policy reforms should be aimed to use severance payments and reduce the ring cost component of lay-off costs.
Originality/value
– Increasing welfare and a more stable business cycle could be supported by using severance payments instead of firing costs.
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.
Institutions and labor reallocation Bertola, Giuseppe; Rogerson, Richard
European economic review,
06/1997, Volume:
41, Issue:
6
Journal Article
Peer reviewed
Open access
Despite stringent dismissal restrictions in most European countries, rates of job creation and destruction are remarkably similar across European and North American labor markets. This paper shows ...that relative-wage compression is conducive to higher employer-initiated job turnover, and argues that wagesetting institutions and job-security provisions differ across countries in ways that are both consistent with rough uniformity of job turnover statistics and readily explained by intuitive theoretical considerations. When viewed as a component of the mix of institutional differences in Europe and North America, European dismissal restrictions are essential to a proper interpretation of both similar patterns in job turnover and marked differences in unemployment flows.
Although labor is usually the unique asset upon which poor people can make a living, little is known about the functioning of labor markets in Sub-Saharan Africa. The purpose of this volume is to ...contribute to the building of knowledge in this area. In this book, the authors use a unique set of identical and simultaneous labor force surveys conducted in seven capitals of Western Africa, as well as in some other African countries (Cameroon, Madagascar, Democratic Republic of Congo) in the 2000s. They present innovative and original results on how people are faring in these labour markets, using up-to-date econometric and statistical methods. Because so little is known about labor markets in the region, each chapter starts with detailed descriptive statistics that aim to shed light onto specific aspects of African urban labor markets. Comparisons between the ten cities are systematically carried out. Descriptive sections are followed by in-depth analyses on various issues. The book is divided into four parts that examine 13 topics. Part I presents the main stylised facts, which are investigated further in a more analytical way throughout the volume. Part II focuses on job quality and labor market conditions, such as unemployment and underemployment, vulnerability, and job satisfaction. Part III explores the many dimensions of labor market inequalities through various lenses, such as returns on education, segmentation, life-cycle inequality (with a particular focus on old age), inter-generational mobility, time related inequality, and gender and ethnic earnings discrimination. Part IV addresses some key coping mechanisms and private responses, with a focus on migration and child labor. The book concludes with recommendations for future research.
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