Dundee Discussion Papers in Economics 094: Firing costs: Eurosclerosis or Eurosuccesses

Yu-Fu Chen (Lead / Corresponding author), Dennis Snower, Gylfi Zoega

    Research output: Working paperDiscussion paper

    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 II¾when large supply shocks were absent and the average rate of growth was high¾these same restrictions may have had the opposite effects in the 1970s and 1980s, when significant negative supply shocks occurred.
    Original languageEnglish
    PublisherUniversity of Dundee
    Number of pages15
    Publication statusPublished - Sep 1999

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    No.094
    ISSN (Print)1473-236X

    Keywords

    • Firing restrictions
    • Stochastic demand
    • Hiring and firing
    • Real options

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