Flexibility at the margin and labor market volatility in OECD countries

Hector Sala, José Ignacio Silva () and Manuel E. Toledo ()

Open Access publications from Universidad Carlos III de Madrid from Universidad Carlos III de Madrid

Abstract: We argue that segmented labor markets with flexibility at the margin (e.g., just affecting fixed-term employees) may achieve similar volatility than fully deregulated labor markets. Flexibility at the margin produces a gap in separation costs among matched workers that cause fixed-term employment to be the main workforce adjustment device. Moreover, in the presence of limitations in the duration and number of renewals of fixed-term contracts, firms respond by fostering labor turnover which further raises the volatility of the labor market. We present a matching model with temporary and permanent jobs where (i) the gap in firing costs and (ii) restrictions in the use of fixedterm contracts play the central role to explain the similar volatility observed in many regulated labor markets with flexibility at the margin vis-à-vis the fully deregulated ones.

Keywords: Flexibility at the margin; Volatility; Separation costs; Matching model (search for similar items in EconPapers)
JEL-codes: J23 J41 J63 (search for similar items in EconPapers)
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Related works:
Journal Article: Flexibility at the Margin and Labor Market Volatility in OECD Countries (2012)
Working Paper: Flexibility at the Margin and Labor Market Volatility in OECD Countries (2008)
Working Paper: Flexibility at the margin and labor market volatility in OECD countries (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:ner:carlos:info:hdl:10016/928

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