Deposit-refund on labor: a solution to equilibrium unemployment?

Ben Heijdra () and Jenny Ligthart

No 99C64, Research Report from University of Groningen, Research Institute SOM (Systems, Organisations and Management)

Abstract: The paper studies the employment effects of a deposit-refund scheme on labor in a simple search-theoretic model of the labor market. It is shown that if a firm pays a deposit when it fires a worker to be refunded when it employs the same or another worker, the vacancy rate increases and the unemployment rate declines. However, the scheme introduces rigidities in the labor market which may be undesirable in countries wanting to liberalize their labor markets. JEL classification codes: J3, J680. Keywords: deposit-refund schemes, firing costs, hiring subsidies, job search, equilibrium unemployrnent.

Date: 1999
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Related works:
Journal Article: Deposit-Refund on Labor: A Solution to Equilibrium Unemployment? (2001)
Working Paper: Deposit-Refundon Labor: A Solution to Equilibrium Unemployment? (2000)
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