From Dual to Unified Employment Protection: Transition and Steady State

45 Pages Posted: 1 Jun 2016

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

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Abstract

This paper analyses the optimal design of a single open-ended contract (SOEC) and studies the political economy of moving towards such a SOEC in a labour market where employment protection is highly discontinuous. We develop a computationally tractable approach to compare two economic environments: one with a large employment protection gap after a short tenure, and another one with a SOEC featuring a smooth tenure profile. For illustrative purposes, we specialise the discussion of such choices to Spain, a country often considered as an epitome of a labour market with dual employment protection.We show that a SOEC has the potential of bringing substantial improvements in equilibrium allocations and welfare. We provide estimates for the eligibility rule and tenure profile of the optimal SOEC, defined as the contract maximising the steady-state lifetime utility of new labour-market entrants. Finally, we use the model to identify winners and losers among younger and older workers in the transitional path of such a reform, and evaluate its political support.

Keywords: single contract, employment protection, dualism, labour market reform

JEL Classification: H29, J33, J65

Suggested Citation

Dolado, Juan Jose and Lalé, Etienne and Siassi, Nawid, From Dual to Unified Employment Protection: Transition and Steady State. IZA Discussion Paper No. 9953. Available at SSRN: https://ssrn.com/abstract=2786037

Juan Jose Dolado (Contact Author)

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

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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