Working Paper: CEPR ID: DP2164
Authors: Pietro Garibaldi
Abstract: This paper proposes and solves a search unemployment model in which job separation requires mandatory notice. When jobs are subject to idiosyncratic uncertainty, firms would issue advance notice even with good business conditions. We show that such precautionary policy is not pursued if it entails sufficiently high productivity losses. If workers can search on the job, an increase in advance notice increases job-to-job movements, reduces unemployment flows, and has ambiguous effects on equilibrium unemployment. Results are consistent with the fact the North American and European labor markets, despite their differences in job security provisions, experience similar turnover rates and dissimilar unemployment flows.
Keywords: unemployment flows; advance notice; search theory
JEL Codes: J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| advance notice (Y20) | job-to-job movements (J62) |
| job-to-job movements (J62) | unemployment flows (J60) |
| advance notice (Y20) | unemployment inflows (J68) |
| advance notice (Y20) | average duration of unemployment (J64) |
| advance notice (Y20) | job creation incentives (J68) |