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Firing Costs: Eurosclerosis or Eurosuccesses?

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  • Chen, Yu-Fu
  • Snower, Dennis
  • Zoega, Gylfi

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.

Suggested Citation

  • Chen, Yu-Fu & Snower, Dennis & Zoega, Gylfi, 1999. "Firing Costs: Eurosclerosis or Eurosuccesses?," Discussion Paper Series 26177, Hamburg Institute of International Economics.
    • Handle: RePEc:ags:hwwadp:26177
    DOI: 10.22004/ag.econ.26177
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    References listed on IDEAS

    as
    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. Maddison, Angus, 1987. "Growth and Slowdown in Advanced Capitalist Economies: Techniques of Quantitative Assessment," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 649-698, June.
    3. Díaz-Vázquez, María del Pilar & Snower, Dennis J., 1996. "Employment, Macroeconomic Fluctuations and Job Security," CEPR Discussion Papers 1430, C.E.P.R. Discussion Papers.
    4. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June.
    5. Daniel Cohen & Arnaud Lefrance & Gilles Saint-Paul, 1997. "French unemployment: a transatlantic perspective," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 12(25), pages 266-291.
    6. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 699-726.
    7. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 381-402.
    8. M. Pilar Diaz & Dennis Snower, 1996. "Employment, Macroeconomic Fluctuations and Job Security. Employment, Macroeconomic Fluctuations and Job Security," Archive Discussion Papers 9611, Birkbeck, Department of Economics, Mathematics & Statistics.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Assar Lindbeck & Dennis J. Snower, 2001. "Insiders versus Outsiders," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 165-188, Winter.
    2. Chen, Yu-Fu & Zoega, Gylfi, 2010. "An essay on the generational effect of employment protection," Mathematical Social Sciences, Elsevier, vol. 59(3), pages 349-359, May.
    3. Yu-Fu Chen & Gylfi Zoega, 1999. "Firing The Young Or The Old: A Non-perpetual Real Options Analysis," Dundee Discussion Papers in Economics 096, Economic Studies, University of Dundee.
    4. Yu-Fu Chen & Gylfi Zoega, 2007. "Aging and Job Security," Dundee Discussion Papers in Economics 206, Economic Studies, University of Dundee.

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    More about this item

    Keywords

    Labor and Human Capital;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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