Firing Costs and Labor Market Fluctuations: A Cross-Country Analysis
Luis-Gonzalo Llosa (),
Lee Ohanian (),
Andrea Raffo () and
Richard Rogerson ()
No 533, 2014 Meeting Papers from Society for Economic Dynamics
We document large differences across OECD countries in fluctuations of the intensive and extensive margin of labor supply over the business cycle. Countries with larger fluctuations in employment relative to hours per worker tend to display larger fluctuations in total hours worked. These facts appear to be related to policies that impede the dismissal of workers. We then present a quantitative framework that features both margins of labor supply as well as costs to the adjustment of employment. Cross-country differences in dismissal costs can account for a large fraction of the patterns observed in the data.
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