How Do Firing Costs Affect Worker Flows in a World with Adverse Selection?

Adriana Kugler and Gilles Saint-Paul
Authors registered in the RePEc Author Service: Gary Charness

Journal of Labor Economics, 2004, vol. 22, issue 3, 553-584

Abstract: This article provides theoretical and empirical analyses of a firing costs model with adverse selection. Our theory suggests that, as firing costs increase, firms increasingly prefer hiring employed workers, who are less likely to be lemons. Estimates of re-employment probabilities from the National Longitudinal Survey of Youth support this prediction. Unjust-dismissal provisions in U.S. states reduce the re-employment probabilities of unemployed workers relative to employed workers. Consistent with a lemons story, the relative effects of unjust-dismissal provisions on the unemployed are generally smaller for union workers and those who lost their previous jobs due to the end of a contract.

Date: 2004
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Citations: View citations in EconPapers (162)

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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jlabec:v:22:y:2004:i:3:p:553-584

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