Threshold effects of dismissal protection regulations and employment dynamics

Yu-Fu Chen, Michael Funke

    Research output: Working paperDiscussion paper

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    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.
    Original languageEnglish
    PublisherUniversity of Dundee
    Publication statusPublished - 2006

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    ISSN (Print)1473-236X


    • Labour demand
    • Dismissal protection legislation
    • Firing costs
    • Real options

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