Labour market regulations aimed at enhancing job-security are dominant in several OECD countries. These regulations seek to reduce dismissals of workers and fluctuations in employment. The main theoretical contribution is to gauge the effects of such regulations on labour demand across establishment sizes. In order to achieve this, we investigate an optimising model of labour demand under uncertainty through the application of real option theory. The calibration results indicate that labour market rigidities may be crucial for understanding sluggishness in firms´ labour demand across plant sizes in continental Europe.
|Name||Dundee Discussion Papers in Economics|
|Publisher||University of Dundee|
- Labour demand
- Dismissal protection legislation
- Firing costs
- Real options