Working Paper: CEPR ID: DP670
Authors: Gilles Saint-Paul
Abstract: A model of the labour market under firing restrictions and endogenous quits is constructed. It is shown that in the spirit of Blanchard and Summers (1988), the model can generate multiple equilibria, with a low-quits/high-unemployment equilibrium coexisting with a high-quits/low-unemployment equilibrium. Under weak conditions, low-unemployment equilibria Pareto dominate high-unemployment equilibria. Mobility premia improve aggregate welfare but may increase unemployment.
Keywords: unemployment; labour mobility; labour market flexibility
JEL Codes: 021; E23; E24; J22; J23; J63; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high firing costs (L97) | reliance on voluntary quits (J63) |
| reliance on voluntary quits (J63) | labor demand (J23) |
| high firing costs (L97) | labor demand (J23) |
| labor demand (J23) | equilibrium level of unemployment (J64) |
| quits (J63) | equilibrium level of unemployment (J64) |
| depressed labor market (J29) | firm value (G32) |
| depressed labor market (J29) | labor demand (J23) |
| policy measures (mobility premia) (J68) | transitions to higher employment equilibria (J62) |