Job security and training: the case of Pareto improving firing taxes

Andrea Ricci and Robert Waldmann ()

No 91/2011, Quaderni del Dipartimento di Economia, Finanza e Statistica from Università di Perugia, Dipartimento Economia

Abstract: This paper shows that the under-investment in firm financed training caused by hold up can justify the introduction of firing taxes in a laissez-faire economy with search frictions and risk neutral agents. More precisely we highlight two results. First, the introduction of a firing tax for newly hired workers combined with hiring subsidies, always acts as a Pareto improving policy. Second, with no hiring subsidies, the introduction of a firing tax for the newly hired always increase the welfare of employed while its impact on the welfare of unemployed depends on the returns to training. We also analyze the implications of such a policy if a minimum wage is binding for newly hired workers.

Keywords: employment protection; training; hold-up; welfare. (search for similar items in EconPapers)
JEL-codes: J41 J63 J8 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2011-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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