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A model of risk sharing in a dual labor market

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  • Créchet, Jonathan

Abstract

In OECD countries, the labor market features a coexistence of open-ended, permanent jobs subject to strict employment protection and fixed-term, temporary jobs. This paper studies a search-and-matching model with risk-averse workers and dynamic employment contracts subject to limited commitment. In equilibrium, permanent and temporary jobs coexist when the match quality is sufficiently dispersed: firing costs generate insurance gains implying that permanent contracts are optimal for high-quality matches. Consistent with recent empirical evidence, quantitative analysis of the model shows that temporary contracts crowd out permanent jobs and do not generate employment gains.

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  • Créchet, Jonathan, 2024. "A model of risk sharing in a dual labor market," Journal of Monetary Economics, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:moneco:v:147:y:2024:i:c:s0304393224000448
    DOI: 10.1016/j.jmoneco.2024.103591
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    Cited by:

    1. Marco Francesconi & Daniela Sonedda, 2024. "Does Weaker Employment Protection Lower the Cost of Job Loss?," CESifo Working Paper Series 11417, CESifo.

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    More about this item

    Keywords

    Search frictions; Dynamic contracts; Limited commitment; Employment protection legislation;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy

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