What are the Short-Run Effects of Increasing Labor Market Flexibility?

48 Pages Posted: 6 Jan 2001

See all articles by Marcelo Veracierto

Marcelo Veracierto

Federal Reserve Bank of Chicago - Research Department

Date Written: December 2000

Abstract

This paper evaluates the short-run effects of introducing labor market flexibility to an economy characterized by large firing taxes. Different reforms are considered: 1) eliminating all firing taxes, 2) introducing flexible new contracts while retaining the firing taxes on workers employed previous to the reform, and 3) introducing temporary contracts. The paper finds that eliminating all firing taxes increases the unemployment rate much more in the short run than in the long run, that introducing new flexible contracts has similar effects as eliminating all firing taxes, and that introducing temporary contracts of short durations can decrease the unemployment rate, but only in the short-run.

JEL Classification: E24, J65, J68

Suggested Citation

Veracierto, Marcelo, What are the Short-Run Effects of Increasing Labor Market Flexibility? (December 2000). FRB Chicago Working Paper No. 2000-29, Available at SSRN: https://ssrn.com/abstract=255113 or http://dx.doi.org/10.2139/ssrn.255113

Marcelo Veracierto (Contact Author)

Federal Reserve Bank of Chicago - Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States
(312) 322-6595 (Phone)

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