Education and the Welfare Gains from Employment Protection

Olivier Charlot and Franck Malherbet

No 4799, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper studies the impact of an European-like labor market regulation on the return to schooling, equilibrium unemployment and welfare. We show that firing costs and temporary employment have opposite effects on educational choices. 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 labor market, as is common in many European countries, with heavily regulated long-term contracts and more flexible short-term contracts to raise the incentives to schooling and aggregate welfare.

Keywords: job destruction; human capital; matching frictions; efficiency (search for similar items in EconPapers)
JEL-codes: I20 J20 J60 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2010-03
New Economics Papers: this item is included in nep-dge, nep-edu, nep-hrm, nep-lab and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published as 'Education and Employment Protection' in: Labour Economics, 2013, 20, 3-23

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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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