Job Creation, Job Destruction and the Life Cycle

Arnaud Cheron (), Jean-Olivier Hairault () and Francois Langot ()

No 641, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: This paper originally incorporates life-cycle features into the job creation - job destruction framework. Once a finite horizon is introduced, this workhorse labor market model naturally delivers the empirically uncontroversial prediction that the employment rate of workers decreases with age due to lower hirings and higher firings of older workers. This age profile of hirings and firings is in addition found to be optimal in a competitive search equilibrium context. If search externalities are not internalized and unemployment benefits distort equilibrium, there is a room for labor market policy differentiated by age. This lastly allows us to debate the incidence of labor demand policies which have been introduced in many countries to favor the older worker employment. We show that hiring subsidies and firing costs should be decreasing with age when unemployment benefits are sufficiently high, as in the Europe. On the contrary, if unemployment benefits are low, as in the US, optimal hiring subsidies and firing taxes should be increasing with age. In this latter case, the introduction of anti-discrimination laws is a good proxy of this first best policy.

Keywords: Job creations and destructions; Life cycle; Older workers (search for similar items in EconPapers)
JEL-codes: J20 J63 J71 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-lab
Date: Written

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