From Dual to Unified Employment Protection: Transition and Steady State

60 Pages Posted: 13 Dec 2015 Last revised: 7 Aug 2020

See all articles by Juan Jose Dolado

Juan Jose Dolado

Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Etienne Lalé

University of Quebec at Montreal (UQAM) - Université du Québec à Montréal; CIRANO; IZA

Nawid Siassi

University of Konstanz - Faculty of Economics and Statistics

Multiple version iconThere are 3 versions of this paper

Date Written: August 1, 2020

Abstract

Three features of real-life reforms of dual employment protection legislation (EPL) systems are particularly hard to study through the lens of standard labour-market search models: (i) the excess job turnover implied by dual EPL, (ii) the non-retroactive nature of EPL reforms, and (iii) the transition dynamics from dual to a unified EPL system. In this paper, we develop a computationally tractable model addressing these issues. Our main finding is that the welfare gains of reforming a dual EPL system are sizeable and achieved mostly through a decrease in turnover at short job tenures. This conclusion continues to hold in more general settings featuring wage rigidities, heterogeneity in productivity upon matching, and human capital accumulation. We also find substantial cross-sectional heterogeneity in welfare effects along the transition to a unified EPL scheme. Given that the model is calibrated to data from Spain, often considered as the epitome of a labour market with dual EPL, our results should provide guidance for a wide range of reforms of dual EPL systems.

Keywords: Employment Protection; Dualism; Labour Market Reform

JEL Classification: E24, J63, J65

Suggested Citation

Dolado, Juan Jose and Lalé, Etienne and Siassi, Nawid, From Dual to Unified Employment Protection: Transition and Steady State (August 1, 2020). Available at SSRN: https://ssrn.com/abstract=2702404 or http://dx.doi.org/10.2139/ssrn.2702404

Juan Jose Dolado

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9300 (Phone)
+34 91 624 9313 (Fax)

HOME PAGE: http://www.eco.uc3m.es/english/staff/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA)

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

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Etienne Lalé (Contact Author)

University of Quebec at Montreal (UQAM) - Université du Québec à Montréal ( email )

CP 8888 Succ Centre Ville
Montréal, Québec H3C3P8
Canada

CIRANO ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

IZA ( email )

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

Nawid Siassi

University of Konstanz - Faculty of Economics and Statistics ( email )

Universitaetsstr. 10
78457 Konstanz
Germany

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