The Impact of Firing Restrictions on Labor Market Equilibrium in the Presence of On-the-job Search

Fabien Postel-Vinay and Hélène Turon

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Abstract: Job-to-job turnover provides a way for employers to escape statutory firing costs, as unprofitable workers may willfully quit their job on receiving an outside offer, or may be induced to accept one that they would otherwise reject with a negotiated severance package. We formalise those mechanisms within an extension of the Diamond–Mortensen–Pissarides model that allows for employed job search. We find that our model explains why higher firing costs intensify job-to-job turnover at the expense of transitions out of unemployment and that ignoring on-the-job Search leads one to overstate the adverse impact of firing costs on employment.

Keywords: Firing restrictions; Labour market equilibrium; Productivity shocks; Wage cuts (search for similar items in EconPapers)
Date: 2014-03
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03473824v1
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Citations: View citations in EconPapers (19)

Published in The Economic Journal, 2014, 124 (575), pp.31-61. ⟨10.1111/ecoj.12040⟩

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Related works:
Journal Article: The Impact of Firing Restrictions on Labour Market Equilibrium in the Presence of On‐the‐job Search (2014)
Working Paper: The Impact of Firing Restrictions on Labor Market Equilibrium in the Presence of On-the-job Search (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03473824

DOI: 10.1111/ecoj.12040

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