Job Mobility and Creative Destruction: Flexicurity in the Land of Schumpeter
University of Zurich, Department of Economics, Working Paper No. 256
77 Pages Posted: 28 Jun 2017
Date Written: June 14, 2017
This paper evaluates the 2003 Austrian severance-pay reform, often advocated as a role model for structural reforms in countries plagued by inflexible labor markets and high unemployment. The reform replaced a system with tenure-based severance payments after a layoff (but not after a quit) by payments into pension accounts that accrue to workers after a layoff as well as after a quit. We identify the reform effects using a regression discontinuity (RD) design and find a substantial increase in job mobility in response to the reform. A search-and-matching model with on-the- job search and tenure-dependent severance payments is structurally estimated using the RD-induced empirical moments. Counterfactual policy experiments suggest that flexicurity reforms spur job creation and can substantially reduce unemployment in countries where severance payments are initially high.
Keywords: severance pay, job mobility, flexicurity
JEL Classification: J63, J65
Suggested Citation: Suggested Citation