A model of risk sharing in a dual labor market

Jonathan Créchet

Journal of Monetary Economics, 2024, vol. 147, issue C

Abstract: In OECD countries, the labor market features a coexistence of open-ended, permanent jobs subject to strict employment protection and fixed-term, temporary jobs. This paper studies a search-and-matching model with risk-averse workers and dynamic employment contracts subject to limited commitment. In equilibrium, permanent and temporary jobs coexist when the match quality is sufficiently dispersed: firing costs generate insurance gains implying that permanent contracts are optimal for high-quality matches. Consistent with recent empirical evidence, quantitative analysis of the model shows that temporary contracts crowd out permanent jobs and do not generate employment gains.

Keywords: Search frictions; Dynamic contracts; Limited commitment; Employment protection legislation (search for similar items in EconPapers)
JEL-codes: E24 J41 J58 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:147:y:2024:i:c:s0304393224000448

DOI: 10.1016/j.jmoneco.2024.103591

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