Job Protection, Minimum Wage and Unemployment

Pierre Cahuc and Andre Zylberberg ()

No 95, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We analyze how wage setting institutions and job-security provisions interact on unemployment. The assumption that wages are renegotiated by mutual agreement only is introduced in a matching model with endogenous job destruction à la Mortensen and Pissarides (1994) in order to get wage profiles with proper microfoundations. Then, it is shown that job protection policies influence the wage distribution and that government mandated severance transfers from employers to workers are not any more neutral, as in the standard matching model where wages are continuously renegotiated: In our framework high redundancy transfers influence employment. Moreover, the assumption of renegotiation by mutual agreement allows us to introduce a minimum wage in a coherent way, and to study its interactions with job protection policies. Our computational exercises suggest that redundancy transfers and administrative dismissal restrictions have negligeable unemployment effects when wages are flexible or when the minimum wage is low, but a dramatic positive impact on unemployment when there is a high minimum wage.

Keywords: Unemployment; job protection; minimum wage; matching models; renegotiation (search for similar items in EconPapers)
JEL-codes: H29 J23 J38 J41 J64 (search for similar items in EconPapers)
Pages: 36 pages
Date: 1999-12
References: Add references at CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
https://docs.iza.org/dp95.pdf (application/pdf)

Related works:
Working Paper: Job protection, minimum wage and employment (1999)
Working Paper: Job Protection, Minimum Wage and Unemployment (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp95

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().