Hiring, Firing, and Relocation under Employment Protection
55 Pages Posted: 30 Oct 2014 Last revised: 2 Apr 2015
Date Written: April 2, 2015
We analyze how hiring and firing costs as well as firing regulatory delays affect firms' hiring, firing, and relocation policy with a stochastic control model. These frictions are substantial; e.g., the firing delay can be almost a year. In the model hiring and firing costs depend on the firm size and the number of people hired or fired. Based on our simulations, hiring and firing elasticities without relocation are highest with respect to demand and productivity volatility and the hiring and firing variable costs. The elasticity of firing due to relocation is highest with respect to the firm-sized firing cost.
Keywords: Labor market frictions, job reallocation, stochastic control
JEL Classification: C61, D21, J63, L51
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