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Firing costs and labor market tightness: Is there any relationship?

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  • Saltari, Enrico
  • Tilli, Riccardo

Abstract

Empirical evidence suggests the existence of a negative relationship between rigidities on the labor market and the level of economic activity. In this paper, we provide a background of this evidence. We build a model where the employed worker chooses the optimal level of firing costs by maximizing her human capital. Performing a comparative statics exercise, we analyze the effects of labor market tightness on the optimal choice of firing costs. Our theoretical model shows the existence of an inverse relation between labor market conditions and the level of firing cost under plausible hypothesis.

Suggested Citation

  • Saltari, Enrico & Tilli, Riccardo, 2011. "Firing costs and labor market tightness: Is there any relationship?," Research in Economics, Elsevier, vol. 65(1), pages 1-4, March.
    • Handle: RePEc:eee:reecon:v:65:y:2011:i:1:p:1-4
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    References listed on IDEAS

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    1. Tito Boeri & J. Ignacio Conde-Ruiz & Vincenzo Galasso, "undated". "Protecting Against Labour Market Risk: Employment Protection or Unemployment Benefits?," Working Papers 2003-17, FEDEA.
    2. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003. "Are judges biased by labor market conditions?," European Economic Review, Elsevier, vol. 47(5), pages 913-944, October.
    3. Saltari Enrico & Tilli Riccardo, 2004. "Labor Market Performance and Flexibility: Which Comes First?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-25, March.
    4. Siegelman, Peter & Donohue, John J, III, 1995. "The Selection of Employment Discrimination Disputes for Litigation: Using Business Cycle Effects to Test the Priest-Klein Hypothesis," The Journal of Legal Studies, University of Chicago Press, vol. 24(2), pages 427-462, June.
    5. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
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    Cited by:

    1. Addessi, William & Saltari, Enrico & Tilli, Riccardo, 2014. "R&D, innovation activity, and the use of external numerical flexibility," Economic Modelling, Elsevier, vol. 36(C), pages 612-621.
    2. Riccardo Tilli, 2015. "High speed and low speed structural reforms in the italian goods and labor market," QUADERNI DI ECONOMIA DEL LAVORO, FrancoAngeli Editore, vol. 2015(103), pages 67-82.
    3. William Addessi & Enrico Saltari & Riccardo Tilli, 2011. "R&D and Innovation Activities and the Use of External NumericalFlexibility," Working Papers in Public Economics 150, Department of Economics and Law, Sapienza University of Roma.

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    Keywords

    Matching models Firing costs;

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