Temporary Jobs, Employment Protection and Labor Market Performance

40 Pages Posted: 20 Jul 2001

See all articles by Pierre Cahuc

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); University of Angers - French National Center for Scientific Research (CNRS); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Fabien Postel-Vinay

University of Bristol; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; Centre for Structural Econometrics (CSE)

Date Written: February 2001

Abstract

Many European labor markets are characterized by heavy employment protection taxes and the widespread use of fixed-duration contracts. The simultaneous use of these two policy instruments seems somewhat contradictory since the former primarily aims at limiting job destruction whereas the latter clearly intensifies it. In this paper, we use a simple matching model with endogenous job destructions to analyze the impact of a combination of the two policies. We find that the political support of insiders to firing restrictions does not necessarily worsen unemployment. In fact, it may be the willingness of a majority of workers to support the "combination" of two instruments with opposite effects on job destruction and job creation that increase unemployment and deteriorates efficiency. Moreover, we argue, that the concentration of firm ownership is likely to influence labor market regulations. We show that the preferred point of a majority of workers is a very flexible labor market, without any firing cost when profits are evenly distributed across the labor force (which portrays a situation where firm ownership is extremely dispersed), whereas a combination of job protection and temporary jobs is preferred by workers when the share of profits that they earn is zero (which corresponds to a situation where firm ownership is concentrated among a few shareholders not participating in the labor market).

Keywords: Unemployment, fixed duration contracts, job destruction, employment protection

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

Suggested Citation

Cahuc, Pierre and Postel-Vinay, Fabien, Temporary Jobs, Employment Protection and Labor Market Performance (February 2001). IZA Discussion Paper No. 260. Available at SSRN: https://ssrn.com/abstract=265640

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/

University of Angers - 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)

London
United Kingdom

IZA Institute of Labor Economics

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

Fabien Postel-Vinay

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

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

Centre for Structural Econometrics (CSE) ( email )

Department of Economics, University of Bristol
8 Woodland Road
Bristol, BS8 1TN
United Kingdom

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