Abstract

http://ssrn.com/abstract=498722
 
 

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Labour Market Frictions, Job Insecurity and the Flexibility of the Employment Relationship


Niko Matouschek


Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Paolo Ramezzana


Compass Lexecon

Frederic Robert-Nicoud


University of Geneva - Department of Political Economics; Centre for Economic Policy Research (CEPR)

January 2004

CEPR Discussion Paper No. 4193

Abstract:     
We analyse a search model of the labour market in which firms and workers meet bilaterally and negotiate over wages in the presence of private information. We show that a fall in labour market frictions induces more aggressive wage bargaining behaviour, which in turn leads to a costly increase in job insecurity. This adverse insecurity effect can be so large that firms and workers who are in an employment relationship can be made worse off by a fall in labour market frictions. In contrast, firms and workers who are not in an employment relationship and are searching the market for a counterpart are always made better off by such a fall in labour market frictions. We then endogenize the organizational structure of the employment relationship and show that a fall in labour market frictions induces a one-off reorganization in which firms and workers switch from a rigid employment relationship to a flexible one. This reorganization leads to a large, one-off increase in job insecurity and unemployment.

Number of Pages in PDF File: 42

Keywords: Job insecurity, flexibility of employment relationships, private information

JEL Classification: D82, J41

working papers series


Date posted: February 4, 2004  

Suggested Citation

Matouschek, Niko and Ramezzana, Paolo and Robert-Nicoud, Frederic, Labour Market Frictions, Job Insecurity and the Flexibility of the Employment Relationship (January 2004). CEPR Discussion Paper No. 4193. Available at SSRN: http://ssrn.com/abstract=498722

Contact Information

Niko Matouschek (Contact Author)
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-4166 (Phone)
847-467-1777 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Paolo Ramezzana
Compass Lexecon ( email )
1101 K Street NW
8th Floor
Washington, DC 20005
United States
HOME PAGE: http://sites.google.com/site/paoloramezzana/
Frederic L. Robert-Nicoud
University of Geneva - Department of Political Economics ( email )
40, boulevard du Pont-d'Arve
Geneva 4, CH-1211
Switzerland
+41 22 379 8272 (Phone)
+41 22 379 8293 (Fax)
HOME PAGE: http://www.unige.ch/ses/ecopo/staff/robert/home.html
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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