Dual Employment Protection Legislation: A Framework for Analysis

53 Pages Posted: 19 Apr 2005

See all articles by Juan Jose Dolado

Juan Jose Dolado

Charles III University of Madrid - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Marcel Jansen

Charles III University of Madrid - Department of Economics; IZA Institute of Labor Economics

Juan F. Jimeno

Banco de España - Research Department; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 2005

Abstract

In many countries, Employment Protection Legislation (EPL) establishes different regulations for certain groups of workers who face more disadvantages in the labor market (young workers, women, unskilled workers, etc.) with the aim of improving their employability. Well-known examples are the introduction of atypical employment contracts (e.g. temporary and determined-duration contracts) which ease firing restrictions for some, but not all, workers. This paper discusses the effects of EPL varying among workers of different skills on the level and composition of unemployment, job flows, productivity and welfare. By using an extension of Mortensen-Pissarides' (1994) search model where heterogeneous workers compete for the same jobs, we are able to identify several key channels through which changing firing costs for some groups of workers affects hiring and firing of all workers and, hence, may have a different impact on aggregate labor market variables than reducing firing costs across the board. Some analytical and simulation results also show that these effects of differentiated firing costs by workers' skills may be different depending upon the initial state of the labor market.

Keywords: firing costs, unemployment, matching

JEL Classification: J64, J63

Suggested Citation

Dolado, Juan Jose and Jansen, Marcel and Jimeno, Juan F., Dual Employment Protection Legislation: A Framework for Analysis (April 2005). Available at SSRN: https://ssrn.com/abstract=706361 or http://dx.doi.org/10.2139/ssrn.706361

Juan Jose Dolado (Contact Author)

Charles III University of Madrid - Department of Economics ( email )

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+34 91 624 9313 (Fax)

HOME PAGE: http://www.eco.uc3m.es/english/staff/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA)

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Germany

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

Marcel Jansen

Charles III University of Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 5740 (Phone)
+34 91 624 9875 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Juan F. Jimeno

Banco de España - Research Department ( email )

Alcala 48
28014 Madrid
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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