Job Protection, Minimum Wage and Unemployment

35 Pages Posted: 29 Mar 2000  

Pierre Cahuc

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE); Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA); French National Center for Scientific Research (CNRS); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Andre Zylberberg

National Center for Scientific Research (CNRS)

Date Written: December 1999

Abstract

We analyze how wage setting institutions and job-security provisions interact on unemployment. The assumption that wages are renegotiated by mutual agreement only is introduced in a matching model with endogenous job destruction a la Mortensen and Pissarides (1994) in order to get wage profiles with proper microfoundations. Then, it is shown that job protection policies influence the wage distribution and that government mandated severance transfers from employers to workers are not any more neutral, as in the standard matching model where wages are continuously renegotiated: In our framework high redundancy transfers influence employment. Moreover, the assumption of renegotiation by mutual agreement allows us to introduce a minimum wage in a coherent way, and to study its interactions with job protection policies. Our computational exercises suggest that redundancy transfers and administrative dismissal restrictions have negligible unemployment effects when wages are flexible or when the minimum wage is low, but a dramatic positive impact on unemployment when there is a high minimum wage.

JEL Classification: H29, J23, J38, J41, J64

Suggested Citation

Cahuc, Pierre and Zylberberg, Andre, Job Protection, Minimum Wage and Unemployment (December 1999). IZA Discussion Paper No. 95. Available at SSRN: https://ssrn.com/abstract=219880

Pierre Cahuc (Contact Author)

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE) ( email )

92245 Malakoff Cedex
France

Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA) ( email )

106-112 Boulevard de l'Hopital
Paris Cedex 13, 75647
France
+33 1 4117 3717 (Phone)
+33 1 4117 3724 (Fax)

HOME PAGE: http://eurequa.univ-paris1.fr/membres/cahuc/

French National Center for Scientific Research (CNRS)

106-112 Boulevard de l'Hopital
75647 Paris Cedex 13
France
+33 4 44 07 82 06 (Phone)
+33 4 44 07 82 02 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Andre Zylberberg

National Center for Scientific Research (CNRS) ( email )

3, rue Michel-Ange
Paris cedex 16, 75794
France

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