Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70625
Authors: 
Cao, Shutao
Shao, Enchuan
Silos, Pedro
Year of Publication: 
2010
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2010-13
Abstract: 
This paper constructs a theory of the coexistence of fixed-term and permanent employment contracts in an environment with ex ante identical workers and employers. Workers under fixed-term contracts can be dismissed at no cost while permanent employees enjoy labor protection. In a labor market characterized by search and matching frictions, firms find it optimal to discriminate by offering some workers a fixed-term contract while offering other workers a permanent contract. Match-specific quality between a worker and a firm determines the type of contract offered. We analytically characterize the firms' hiring and firing rules. Using matched employer-employee data from Canada, we estimate the wage equations from the model. The effects of firing costs on wage inequality vary dramatically depending on whether search externalities are taken into account.
Subjects: 
employment protection
unemployment
dual labor markets
wage inequality
JEL: 
H29
J23
J38
E24
Document Type: 
Working Paper

Files in This Item:
File
Size
390.97 kB





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