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Title:Firing Costs: Eurosclerosis or Eurosuccesses? PDF Logo
Authors:Chen, Yu-Fu
Snower, Dennis J.
Gylfi, Zoega
Issue Date:1999
Series/Report no.:HWWA Discussion Paper 78
Abstract:In this paper we analyse the employment implications of firing restrictions. We find that when a recession is expected and the trend rate of productivity growth is small, a rise in firing costs affects mainly the hiring decision. Thus there is a negative effect on average employment. When, on the other hand, a boom is expected and the rate of productivity growth is large, firing costs affect mainly the firing decision. Then, as a result, average employment is increased. Our analysis suggests that while firing restrictions might have stimulated employment and reduced unemployment in Europe in the first two decades following World War II - when large supply shocks were absent and the average rate of growth was high - these same restrictions may have had the opposite effects in the 1970s and 1980s, when significant negative supply shocks occured.
Subjects:firing restrictions
stochastic demand
hiring and firing
real options
JEL:E32
J24
J54
J23
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
HWWA Discussion Paper, Hamburgisches Welt-Wirtschafts-Archiv

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