Please use this identifier to cite or link to this item:
Full metadata record
DC FieldValueLanguage
dc.contributor.authorJahn, Elke J.en_US
dc.contributor.authorWagner, Thomasen_US
dc.description.abstractRisk-averse job seekers fearing the scarring effect of unemployment meet vacancies offering contractual employment protection (CEP) in form of guaranteed employment (GEC) or severance pay contracts (SPC). A GEC fully eliminates both the income risk and the scarring risk of unemployment. SPC diversify the income risk, but provide only limited protection against the scarring risk. (1) Workers strictly prefer contract market to spot market jobs. (2) A higher productivity, a lower probability of demand shocks or of finding a re-employment after a dismissal as well as lower public unemployment benefits increase the fraction of workers concluding a GEC. (3) Although firms are risk-neutral, first-best SPC are not incentive compatible under asymmetric information on the demand for the output of the job. In the second-best equilibrium, a positive fraction of over-insured workers will conclude a GEC, while workers signing a SPC incur income risk. (4) With asymmetric information on the reemployment status of a dismissed worker, employees who conclude a third-best SPC face both uninsurable income risk and the unemployment scar. Workers with a precautionary motive who expect a large or long lasting scar, conclude SPC with wage replacement rates strictly larger than one and low recession wages, which make their jobs more viable.en_US
dc.publisher|aInstitute for the Study of Labor (IZA) |cBonnen_US
dc.relation.ispartofseries|aIZA Discussion Papers |x1813en_US
dc.subject.keywordscarring effect of unemploymenten_US
dc.subject.keywordcontractual employment protectionen_US
dc.subject.keywordguaranteed employment contracten_US
dc.subject.keywordseverance pay contracten_US
dc.subject.keywordimplicit contracten_US
dc.subject.keywordmoral hazarden_US
dc.titleContractual employment protection and the scarring risk of unemploymenten_US
dc.type|aWorking Paperen_US

Files in This Item:
684.29 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.