Firing Costs: Eurosclerosis or Eurosuccesses?

Yu-Fu Chen, Dennis J. Snower and Gylfi Zoega

No 78, HWWA Discussion Papers from Hamburg Institute of International Economics (HWWA)

Abstract: In this paper we analyse the employment implications of firing restrictions. We find that when a recession is expected and the trend rate of productivity growth is small, a rise in firing costs affects mainly the hiring decision. Thus there is a negative effect on average employment. When, on the other hand, a boom is expected and the rate of productivity growth is large, firing costs affect mainly the firing decision. Then, as a result, average employment is increased. Our analysis suggests that while firing restrictions might have stimulated employment and reduced unemployment in Europe in the first two decades following World War II - when large supply shocks were absent and the average rate of growth was high - these same restrictions may have had the opposite effects in the 1970s and 1980s, when significant negative supply shocks occured.

Keywords: stochastic demand; hiring and firing; real options; firing restrictions (search for similar items in EconPapers)
JEL-codes: E32 J23 J24 J54 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Firing Costs: Eurosclerosis or Eurosuccesses? (1999)
Working Paper: Firing Costs: Eurosclerosis Or Eurosuccesses (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:hwwadp:26177

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