Firm-Financed Training and Pareto Improving Firing Taxes

35 Pages Posted: 24 Jun 2011

See all articles by Andrea Ricci

Andrea Ricci

Italian Institute for the Development of Vocational Training of Workers

Robert Waldmann

Universita di Roma Tor Vergata; National Bureau of Economic Research (NBER)

Date Written: 2011

Abstract

This paper shows that the under-investment in firm-financed training caused by hold up can justify the introduction of firing taxes in a laissez-faire economy with search frictions and risk neutral agents. More precisely we highlight two results. First, the introduction of a firing tax for newly hired workers combined with hiring subsidies, always acts as a Pareto improving policy. Second, with no hiring subsidies, the introduction of a firing tax for the newly hired always increase the welfare of employed while its impact on the welfare of unemployed depends on the returns to training. We also analyze the implications of such a policy if a minimum wage is binding for newly hired workers.

Keywords: employment protection, training, hold-up, welfare

JEL Classification: J41, J63, J8

Suggested Citation

Ricci, Andrea and Waldmann, Robert, Firm-Financed Training and Pareto Improving Firing Taxes (2011). CEIS Working Paper No. 197. Available at SSRN: https://ssrn.com/abstract=1871919 or http://dx.doi.org/10.2139/ssrn.1871919

Andrea Ricci

Italian Institute for the Development of Vocational Training of Workers ( email )

Corso d'Italia n. 33
Rome, 00198
Italy

Robert Waldmann (Contact Author)

Universita di Roma Tor Vergata ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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