Uncertainty and the Politics of Employment Protection

This paper investigates social preferences over employment protection regulation in a general equilibrium model of dynamic labor demand and sheds some light on the comparative dynamics of Eurosclerosis. When firing costs are low, a transition to a rigid labor market is favored by all the employed wo...

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Bibliographic Details
Published in:Journal of labor economics 2015-01, Vol.33 (1), p.209-267
Main Authors: Vindigni, Andrea, Scotti, Simone, Tealdi, Cristina
Format: Article
Language:English
Subjects:
Applied general equilibrium models
Capital costs
Comparative analysis
Economic growth
Economic models
Economic rent
Economic theory
Employment
Employment termination
Job creation
Labor market
Labor markets
Labor supply
Labour market
Mathematical expressions
Productivity
Studies
Uncertainty
Unemployment
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Summary:This paper investigates social preferences over employment protection regulation in a general equilibrium model of dynamic labor demand and sheds some light on the comparative dynamics of Eurosclerosis. When firing costs are low, a transition to a rigid labor market is favored by all the employed workers with idiosyncratic productivity below some threshold; when their status quo level is high, preserving a rigid labor market is favored only by the employed with intermediate productivity. A more volatile environment and a lower rate of productivity growth increase the political support for labor market rigidity only in high-rents economies.
ISSN:0734-306X
1537-5307
DOI:10.1086/678306