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

31 Pages Posted: 13 Jul 2018

See all articles by Kjell Erik Lommerud

Kjell Erik Lommerud

University of Bergen

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: July 2018

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 matched with workers of different productivity and wages are determined by ex post bargaining. The model is characterized by two intertwined sources of inefficiency, namely a matching externality and a hold‐up externality associated with the bargaining strength of workers. The 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 workers are sufficiently risk‐averse and the hold‐up problem is relatively important.

Keywords: Flexicurity, unemployment insurance

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 (July 2018). The Scandinavian Journal of Economics, Vol. 120, Issue 3, pp. 763-793, 2018, Available at SSRN: https://ssrn.com/abstract=3210987 or http://dx.doi.org/10.1111/sjoe.12244

Kjell Erik Lommerud (Contact Author)

University of Bergen ( email )

Mus├ęplassen 1
N-5008 Bergen, +47 55 58
Norway

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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