The impact of firing restrictions on labour market equilibrium in the presence of on-the-job search

Fabien Postel-Vinay*, Helene Turon

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

6 Citations (Scopus)

Abstract

Job-to-job turnover provides a way for employers to escape statutory firing costs, as unprofitable workers may willfully quit their job on receiving an outside offer, or may be induced to accept one that they would otherwise reject with a negotiated severance package. We formalise those mechanisms within an extension of the Diamond-Mortensen-Pissarides model that allows for employed job search. We find that our model explains why higher firing costs intensify job-to-job turnover at the expense of transitions out of unemployment and that ignoring on-the-job Search leads one to overstate the adverse impact of firing costs on employment.

Original languageEnglish
Pages (from-to)31-61
Number of pages31
JournalEconomic Journal
Volume124
Issue number575
DOIs
Publication statusPublished - 1 Jul 2013

Keywords

  • UNEMPLOYMENT
  • EMPLOYMENT
  • CONTRACTS
  • SECURITY
  • RIGIDITIES
  • EUROPE
  • WORKER
  • US

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