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Deposit-refund on labor: a solution to equilibrium unemployment?

Author

Listed:
  • Heijdra, Ben J.
  • Ligthart, Jenny E.

    (Groningen University)

Abstract

The paper studies the employment effects of a deposit-refund scheme on labor in a simple search-theoretic model of the labor market. It is shown that if a firm pays a deposit when it fires a worker to be refunded when it employs the same or another worker, the vacancy rate increases and the unemployment rate declines. However, the scheme introduces rigidities in the labor market which may be undesirable in countries wanting to liberalize their labor markets. JEL classification codes: J3, J680. Keywords: deposit-refund schemes, firing costs, hiring subsidies, job search, equilibrium unemployrnent.

Suggested Citation

  • Heijdra, Ben J. & Ligthart, Jenny E., 1999. "Deposit-refund on labor: a solution to equilibrium unemployment?," Research Report 99C64, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    • Handle: RePEc:gro:rugsom:99c64
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    File URL: http://irs.ub.rug.nl/ppn/190864087
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    Keywords

    deposit-refund schemes; firing costs; hiring subsidies; job search; equilibrium unemployrnent.;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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