Endogenous Labor Force Participation and Firing Costs

Weh-Sol Moon

MPRA Paper from University Library of Munich, Germany

Abstract: I construct a matching model to explain the labor market transition between employment, unemployment and nonparticipation, and evaluate the quantitative effects of firing costs. The model has several features that are distinguished from previous studies: endogenous labor force participation, different job-search decisions and imperfect insurance markets. I find that the model is able to account for the U.S. labor market, especially the gross labor-force transition rates. I also find that firing costs as a type of firing tax have a negative effect on the layoff rate, the job-finding probability and the participation rate. In particular, the effect of a decrease in the job-finding probability is greater than the effect of a decrease in the layoff rate, and this results in an increase in the unemployment-to-population ratio. Finally, firing costs make individuals' job tenures longer and skew the asset distribution to the right.

Keywords: Search and Matching; Labor Force Participation; Firing Costs (search for similar items in EconPapers)
JEL-codes: E24 J21 J64 J65 (search for similar items in EconPapers)
Date: 2009-05-21
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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https://mpra.ub.uni-muenchen.de/15749/1/MPRA_paper_15749.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/28263/1/MPRA_paper_28263.pdf revised version (application/pdf)

Related works:
Journal Article: Endogenous labor force participation and firing costs (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:15749

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