How Do Layoff Costs Affect Employment?
By Lars Ljungqvist. Social Science Research Network, 2002
225 citations recorded by the source corpus.
General equilibrium analyses of layoff costs have had mixed messages on the implications for employment. This paper brings out the economic forces at work and explains the disparate results. Specifically, we show that positive employment effects of layoff costs come through reducing labor reallocation, whereas negative effects come through reducing the private return to work due to those layoff costs and the associated inefficient allocation of labor. Additional adverse employment effects can arise through an increase in the effective bargaining strength of workers. These forces explain why layoff costs tend to increase employment in search models while the opposite is true in models with employment lotteries. In matching models, we show that the employment effects depend critically on how layoff costs are assumed to enter the bargaining process.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/e5731013a02ed19b07d0fabab33e14f83f634372
Citations in the corpus
- Two‐Tier Labour Markets in the Great Recession: France Versus Spain-super- (2012, unknown): “As Ljungqvist (2002) has shown, assuming that firing costs are paid by the employer if there is a separation in the initial bargain magnifies the impact of firing costs on unemployment.”
- Temporary Employment, Job Flows and Productivity: A Tale of Two Reforms (2012, unknown): “The e¤ects on productivity and investment are theoretically ambiguous (Ljungqvist, 2002) but we use the insights of this literature to interpret our results.”
- Dismissal Protection and Worker Flows in Small Establishments (2007, unknown): “The conclusion of ambiguous average employment effects is also prevalent in general equilibrium models (Ljungqvist 2002).”
- Explaining the Spread of Temporary Jobs and its Impact on Labor Turnover (2016, unknown): “…emergence of temporary contracts in labor markets where there is little di¤erence between the termination costs of temporary and permanent contracts, as in some 11See among others, Lazear (1990), Bentolila and Saint-Paul (1992), Saint-Paul (1996), Ljungqvist (2002), l Haridon and Malherbet (2009).”
- Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy (2016, unknown): “Most notably, holding the size distribution fixed, lower firings costs make firms’employment levels more volatile by encouraging larger adjustments to transitory shocks (e.g., Ljungqvist 2002; Mortensen and Pissarides 1999).”
- Two-Tier Labor Markets in the Great Recession: France vs. Spain (2010, unknown): “As Ljungqvist (2002) has shown, assuming that firing costs are paid by the employer if there is a separation in the initial bargain —when the job starts— magnifies the impact of firing costs on unemployment.”
- The Employment Effects of Severance Payments with Wage Rigidities (2005, unknown): “Ljungqvist (2002) provides a comprehensive overview of the various models studying the effects of layoff taxes on unemployment.”