Employment protection and unemployment benefits: On technology adoption and job creation in a matching model

Kjell Lommerud (), Odd Rune Straume and Steinar Vagstad

No 3/2012, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: We analyse the effects of different labour market policies - employment protection, unemployment benefits and payroll taxes - on job creation and technology choices in a model where firms are randomly matched with workers of different productivity and wages are determined by ex-post bargaining. In this setting, unemployment benefits are unambiguously detrimental both to job creation and technology adoption while the effects of employment protection are mixed, as higher firing costs stifle job creation but stimulate technology investments. This suggests that a 'flexicurity' policy, with low employment protection and high unemployment benefits, might have the adverse effect of slowing down technological progress and job growth. Indeed, our analysis of the optimal policy solution suggests that flexicurity is often not optimal, and may be optimal only in conjunction with payroll subsidies.

Keywords: Technology adoption; job creation; employment protection; unemployment insurance. (search for similar items in EconPapers)
JEL-codes: H21 J38 J65 O31 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ias and nep-lab
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Related works:
Journal Article: Employment Protection and Unemployment Benefits: On Technology Adoption and Job Creation in a Matching Model (2018)
Working Paper: Employment protection and unemployment benefits: On technology adoption and job creation in a matching model (2016)
Working Paper: Employment protection and unemployment benefits: on technology adoption and job creation in a matching model (2012)
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