The systematic use of experience rating is an original feature of the U.S. unemployment benefits system. At first glance, experience rating does not appear to be a desirable choice for a lot of ...European labor markets, which are characterized by high firing costs. We provide a simple matching model of a rigid labor market that includes firing costs, temporary jobs and a minimum wage in order to analyze this issue. Our analysis leads us to argue that experience rating is likely to reduce unemployment and improve the welfare of low-skilled workers in France, and more generally for low-skilled workers in a typical, rigid Continental European labor market.
We construct a theoretical labor market that incorporates skill differences across workers to identify under which conditions temporary contracts are a way to access to permanency. Firing costs and ...unemployment benefits increase the threshold productivity above which workers access to permanency.
This paper studies the role of entry and exit in the short run behavior of a general equilibrium model with industry dynamics. For tractability, and to preserve potential asymmetries in the impulse ...responses, I focus on the transition dynamics of the economy after shocks. Entry and exit are found to be insensitive to productivity shocks of reasonable magnitude. Moreover, the dynamics of GDP are insensitive to fluctuations in entry and exit rates, and any asymmetries are negligible. As an application of the model, the paper also asks whether firing costs may interact with entry and exit to affect transition dynamics after shocks, finding that they do not.
While several countries have recognized the need of introducing flexibility to their labor markets, there are different ways of doing so. Using a small open economy with tenure-dependent separation ...taxes, this paper compares introducing a full reform with two partial alternatives: (1) the introduction of temporary contracts, and (2) the elimination of separation costs from all new hires while freezing them on the workers that were hired prior to the reform. The first alternative can achieve a first-best long run outcome but leads to a sharp initial recession. The second alternative generates a similar long run outcome but avoids the recessionary adjustment.
This paper constructs a general equilibrium model with technology adoption, in which labor reallocation is determined by the rate of embodied technical change (ETC) and by labor market rigidities. In ...the calibrated model, ETC has a positive effect on aggregate employment, but this effect is weaker in the presence of firing costs. As a result, a higher rate of ETC generates a modest increase in the divergence of employment outcomes across countries that have different levels of institutional firing costs. Central to this result is the link between adoption costs and the rate of embodied technical change. The importance of entry costs and skill requirements is also explored.
The Jobs Crisis Ajwad, M Ihsan; Ajwad, M. Ihsan
2011, 03-29-2011, 2011-03-29
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Open access
The financial crisis swiftly expanded into an economic crisis throughout America and Western Europe, from where it spread to developing countries that had depended on foreign direct investment, ...consumer and mortgage credit, trade, and remittances. By early 2009, it was clear that this economic downturn would be more severe than any crisis since the great depression, prompting some to it as the 'great recession.' Eastern European and Central Asian countries were hit particularly hard during 2009, global Gross Domestic Product (GDP) contracted for the first time since Second World War. The financial crisis and the ensuing economic downturn, the worst since the Great Depression in the 1930s, went hand in hand with tightening of credit markets, bank failures, firm closures, and high demand for social safety nets. This report, The jobs crisis: household and Government responses to the great recession in Eastern Europe and Central Asia, brings together evidence that World Bank teams have collected on the impact of the crisis on households and families in Eastern Europe and Central Asia. This report shows how the crisis was felt by Eastern European and Central Asian households. Not only did unemployment rise sharply but it also lasted longer. The report also shows that the pain of the recession was broader, with workers taking home smaller paychecks as firms offered lower wage rates and fewer hours of work to their workers. The jobs crisis finds that households used a variety of ways to cope with the crisis. The jobs crisis presents an account of how governments reacted to the crisis through social policy reforms and initiatives and how such responses could be improved in the future. Unemployment insurance benefits played a particularly important cushioning role, but coverage of the unemployed tended to be limited.
Labour market regulations aimed at enhancing job-security are dominant in several OECD countries. These regulations seek to reduce dismissals of workers and fluctuations in employment. The main ...theoretical contribution is to gauge the effects of such regulations on labour demand across establishment sizes. In order to achieve this, we investigate an optimising model of labour demand under uncertainty through the application of real option theory. We also consider other forms of employment which increase the flexibility of the labour market. In particular, we are modelling the contribution of temporary employment agencies (Zeitarbeit) allowing for quick personnel adjustments in client firms. The calibration results indicate that labour market rigidities may be crucial for understanding sluggishness in firms' labour demand and the emergence and growth of temporary work.
Sticky feet Hollweg, Claire H; Lederman, Daniel; Rojas, Diego ...
2014., 2014, 6-26-2014, 2014-06-17, 2014-06-30
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Open access
This report analyzes the paths by which developing country labor markets adjust to permanent trade-related shocks. Trade shocks can bring about reallocation of labor between industries, but the ...presence of labor mobility costs implies economy-wide losses because they extend the period of economic adjustment. This report focuses primarily on the adjustment costs faced by workers after a trade shock, because of magnitude and welfare implications and policy relevance. From a policy viewpoint, understanding the relative magnitudes of labor mobility and adjustment costs can help policymakers design trade policies that are consistent with employment objectives, can be complemented by labor policies, or support programs to facilitate labor transitions, or both. To complement and validate the analysis based on structural choice models, the study designed a distinct empirical approach using reduced-form econometric estimation strategies. This approach examines the impact of structural reforms and worker displacement on labor market outcomes. This makes it possible to estimate the time required to adjust to a trade-related shock, but does not assume the rigid underlying relationship inherent in structural models. This report is organized as follows: chapter one gives introduction. Chapter two presents evidence from the literature on the relative magnitude of labor adjustment costs borne by workers and by firms. Chapter three presents a new database of country-level labor mobility cost estimates for both developing and developed economies. Chapter four showcases country case studies in which labor mobility costs vary by industry, firm size, and worker type (for example, informal versus. formal). Chapter five analyzes the impact of structural reforms on aggregate labor market outcomes across countries and the effect of worker displacement due to plant closings on the employment outcomes of individual workers in Mexico. Chapter six concludes with a summary of the main findings about the labor adjustment costs associated with trade-related shocks and a discussion of policy responses internationally.
A dynamic version of Shapiro and Stiglitz's shirking model features a form of inefficiency which is not captured by the original static model. Since, incentive compatibility requires workers to enjoy ...state-independent rents, any offer by redundant workers to take a wage cut is not credible, as it is not ex post incentive compatible. This implies that, if firms cannot commit on future firing ex ante, the number of redundancies is inefficiently high, as the externality, in the form of foregone rents, that firms impose on workers on severance cannot be traded. Redundancy payments make firms internalize the externality and fireless. Aggregate employment unambiguously increases and a Pareto improvement can be obtained provided all or part of the cost accrues to workers.
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