Working Paper: CEPR ID: DP690
Authors: Samuel Bentolila; Gilles Saint-Paul
Abstract: This paper formulates a discrete-time model to study the effects of firing costs on labour demand by a firm facing linear adjustment costs under serially independent productivity shocks. We show that a rise in firing costs reduces the firm's marginal propensities to hire and fire, and may increase or decrease its average steady-state labour demand.
Keywords: unemployment; labour demand; firing costs
JEL Codes: J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in firing costs (J32) | Decrease in marginal propensities to hire (J23) |
| Increase in firing costs (J32) | Decrease in marginal propensities to fire (E19) |
| Increase in firing costs (J32) | Decrease in average labor demand (for low firing costs) (J23) |
| Increase in firing costs (J32) | Increase in average labor demand (for high firing costs) (J23) |
| Decrease in quit rate (J63) | Increase in labor demand (when firing costs are low) (J23) |
| Decrease in quit rate (J63) | Decrease in labor demand (when firing costs are high) (J63) |