Employment Protection and Unemployment Benefits: On Technology Adoption and Job Creation in a Matching Model

31 Pages Posted: 18 Apr 2016

See all articles by Kjell Erik Lommerud

Kjell Erik Lommerud

University of Bergen - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Odd Rune Straume

University of Minho - Economic Policies Research Unit (NIPE); CESifo (Center for Economic Studies and Ifo Institute)

Steinar Vagstad

Norwegian Research Centre in Organization and Management

Date Written: March 2016

Abstract

We analyse the effects of different labour market policies - employment protection, unemployment benefits and payroll taxes - on job creation and technology choices in a model where firms are randomly matched with workers of different productivity and wages are determined by ex-post bargaining. The model is characterised by two intertwined sources of inefficiency, namely a matching externality and a hold-up externality associated with workers' bargaining strength. Results depend on the relative importance of the two externalities and on worker risk aversion. "Flexicurity", meaning low employment protection and generous unemployment insurance, can be optimal if the hold-up problem is relatively important and workers greatly value income security.

Keywords: Technology adoption; job creation; employment protection; unemployment in-

JEL Classification: H21, J38, J65, O31

Suggested Citation

Lommerud, Kjell Erik and Straume, Odd Rune and Vagstad, Steinar, Employment Protection and Unemployment Benefits: On Technology Adoption and Job Creation in a Matching Model (March 2016). CEPR Discussion Paper No. DP11192, Available at SSRN: https://ssrn.com/abstract=2766500

Kjell Erik Lommerud (Contact Author)

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
+47 5 558 9209 (Phone)
+47 5 558 9210 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Odd Rune Straume

University of Minho - Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Steinar Vagstad

Norwegian Research Centre in Organization and Management ( email )

Rosenbergsgt. 39
5015 Bergen
Norway
0041-55-54 84 00 (Phone)
0041-55-54 84 01 (Fax)

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