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Dismissal Protection or Wage Flexibility

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  • Jens Rubart

    (Institute of Economics Darmstadt University of Technology)

Abstract

Due to increased technological change which lead to an increased demand for skilled workers, it becomes more and more difficult for low skilled workers to find a job. How should a society or political decision makers react? Recently, German politicians are engaged in a discussion about the introduction of combined and minimum wages as well as the reduction of employment protection mechanisms in order to increase the employment status of low skilled workers. However, a detailed macroeconomic examination of the effects of the above mentioned labor market policies in an environment which exhibits structural changes is still missing. Based on recent findings by Lindquist (2004) and Pierrard and Sneessens (2004), in this paper a dynamic general equilibrium model with equilibrium unemployment due to search an matching frictions is developed. Within this framework, the effects of labor market policies, in particular the introduction of minimum wages and firing costs, are analyzed. We show that a reduction of employment protection mechanisms are rather ineffective to increase the employment status of low skilled workers. However, it is shown that the higher a relative wage rigidity is the lower is low skilled employment

Suggested Citation

  • Jens Rubart, 2006. "Dismissal Protection or Wage Flexibility," Computing in Economics and Finance 2006 406, Society for Computational Economics.
    • Handle: RePEc:sce:scecfa:406
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    Cited by:

    1. Rubart, Jens & Semmler, Willi, 2007. "East German Unemployment from a Macroeconomic Perspective," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35712, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).

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    More about this item

    Keywords

    DGE Model; Heterogeneous Labor; Skill Biased Technological Change; Search Unemployment; Employment Protection; Minimum Wages;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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