Education and the Welfare Gains from Employment Protection

CIRPEE Working Paper 10-12

45 Pages Posted: 13 Mar 2010

See all articles by Olivier Charlot

Olivier Charlot

University of Cergy-Pontoise

Franck Malherbet

University of Cergy-Pontoise - THEMA; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 11, 2010

Abstract

This paper studies the impact of an European-like labor market regulation on the return to schooling, equilibrium unemployment and welfare. We show that firing costs and temporary employment have opposite effects on educational choices. We furthermore demonstrate that a laissez faire economy with no regulation is inefficient as it is characterized by insufficient educational investments leading to excess job destruction and inadequate job creation. By stabilizing employment relationships, firing costs may spur educational investments and therefore lead to welfare and productivity gains, though a first-best policy would be to subsidize education. However, there is little chance for a dual labor market, as is common in many European countries, with heavily regulated long-term contracts and more flexible short-term contracts to raise the incentives to schooling and aggregate welfare.

Keywords: Human capital, job destruction, matching frictions, efficiency

JEL Classification: I20, J20, J60

Suggested Citation

Charlot, Olivier and Malherbet, Franck, Education and the Welfare Gains from Employment Protection (March 11, 2010). CIRPEE Working Paper 10-12, Available at SSRN: https://ssrn.com/abstract=1568842 or http://dx.doi.org/10.2139/ssrn.1568842

Olivier Charlot (Contact Author)

University of Cergy-Pontoise ( email )

33 Boulevard du Port
Cergy-Pontoise Cedex, Cedex 95011
France

Franck Malherbet

University of Cergy-Pontoise - THEMA ( email )

33 boulevard du port
F-95011 Cergy-Pontoise Cedex, 95011
France

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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