Education and the welfare gains from employment protection

Olivier Charlot and Franck Malherbet

No 2010-04, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

Abstract: In this paper, we generalize the study of the return to education undertaken in e.g. Laing, Palivos and Wang (1995) or Burdett and Smith (2002) to an environment where the link between education and employment stability is taken into account. This enables us to study how an European-like and Employment Protection Legislation (EPL) with heavily regulated long-term contracts and more flexible short-term contracts affects the return to schooling, equilibrium unemployment and welfare. In this context, we show that ¯ring costs and temporary employment have opposite effects on the rate of use of human capital and thus, on educational investments. We furthermore demonstrate that a laissez faire economy with no regulation is inefficient as it is characterized by insufficient educational investments leading to excess job destruction and inadequate job creation. By stabilizing employment relationships, firing costs may spur educational investments and therefore lead to welfare and productivity gains, though a first-best policy would be to subsidize education. However, there is little chance for a dual (European-like) EPL to raise the incentives to schooling and aggregate welfare.

Keywords: human capital; job destruction; matching frictions; efficiency (search for similar items in EconPapers)
JEL-codes: I20 J20 J60 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-dge, nep-edu, nep-hrm, nep-lab and nep-reg
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Education and the Welfare Gains from Employment Protection (2010)
Working Paper: Education and the Welfare Gains from Employment Protection (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2010-04

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