Working Paper: CEPR ID: DP1519
Authors: Giuseppe Bertola; Richard Rogerson
Abstract: Despite stringent dismissal restrictions in most European countries, rates of job creation and destruction are remarkably similar across European and North American labour markets. This paper shows that relative-wage compression is conducive to higher employer-initiated job turnover, and argues that wage-setting institutions and job security provisions differ across countries in ways that are both consistent with rough uniformity of job turnover statistics and readily explained by intuitive theoretical considerations. When viewed as a component of the mix of institutional differences in Europe and North America, European dismissal restrictions are essential to a proper interpretation of both similar patterns in job turnover, and marked differences in unemployment flows.
Keywords: firing costs; wage compression; gross job turnover
JEL Codes: J31; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firing costs (J32) | lower gross job turnover rates (J63) |
| wage compression (J31) | increases job turnover (J63) |
| firing costs (J32) | job turnover (J63) |
| wage compression (J31) | job turnover (J63) |
| firing costs and wage compression (J32) | ambiguous effects on job turnover (J63) |