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Title:Job Protection, Minimum Wage and Unemployment PDF Logo
Authors:Zylberberg, André
Cahuc, Pierre
Issue Date:1999
Series/Report no.:IZA Discussion paper series 95
Abstract:We analyze how wage setting institutions and job-security provisions interact on unemployment. The assumption that wages are renegotiated by mutual agreement only is introduced in a matching model with endogenous job destruction – la Mortensen and Pissarides (1994) in order to get wage profiles with proper microfoundations. Then, it is shown that job protection policies influence the wage distribution and that government mandated severance transfers from employers to workers are not any more neutral, as in the standard matching model where wages are continuously renegotiated: In our framework high redundancy transfers influence employment. Moreover, the assumption of enegotiation by mutual agreement allows us to introduce a minimum wage in a coherent way, and to study its interactions with job protection policies. Our computational exercises suggest that redundancy transfers and administrative dismissal restrictions have negligeable unemployment effects when wages are flexible or when the minimum wage is low, but a dramatic positive impact on unemployment when there is a high minimum wage.
Subjects:Unemployment
job protection
minimum wage
matching models
renegotiation
JEL:J64
H29
J23
J38
J41
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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