Evaluating Labor Market Reforms: A General Equilibrium Approach

53 Pages Posted: 14 Sep 2005 Last revised: 24 Jun 2010

See all articles by Cesar Alonso-Borrego

Cesar Alonso-Borrego

Universidad Carlos III de Madrid - Department of Economics

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Jose E. Galdon-Sanchez

Universidad Publica de Navarra ; IZA

Multiple version iconThere are 2 versions of this paper

Date Written: August 2005

Abstract

Job security provisions are commonly invoked to explain the high and persistent European unemployment rates. This belief has led several countries to reform their labor markets and liberalize the use of fixed-term contracts. Despite how common such contracts have become after deregulation, there is a lack of quantitative analysis of their impact on the economy. To fill this gap, we build a general equilibrium model with heterogeneous agents and firing costs in the tradition of Hopenhayn and Rogerson (1993). We calibrate our model to Spanish data, choosing in part parameters estimated with firm-level longitudinal data. Spain is particularly interesting, since its labor regulations are among the most protective in the OECD, and both its unemployment and its share of fixed-term employment are the highest. We find that fixed-term contracts increase unemployment, reduce output, and raise productivity. The welfare effects are ambiguous.

Suggested Citation

Alonso-Borrego, Cesar and Fernández-Villaverde, Jesús and Galdon-Sanchez, Jose E., Evaluating Labor Market Reforms: A General Equilibrium Approach (August 2005). NBER Working Paper No. w11519. Available at SSRN: https://ssrn.com/abstract=776007

Cesar Alonso-Borrego

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

Calle Madrid 126
Getafe, 28903
Spain
+34 91 6249749 (Phone)
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Jesús Fernández-Villaverde (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Jose E. Galdon-Sanchez

Universidad Publica de Navarra ( email )

Department of Economics
Campus de Arrosadia
Pamplona, Navarra 31006
Spain
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+34 948 16 97 21 (Fax)

HOME PAGE: http://www.econ.unavarra.es/~galdon/

IZA

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