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Discussion Paper Details

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Title: Employment protection and unemployment benefits: On technology adoption and job creation in a matching model

Author(s): Kjell Erik Lommerud, Odd Rune Straume and Steinar Vagstad

Publication Date: March 2016

Keyword(s): employment protection, job creation, Technology adoption and unemployment in-

Programme Area(s): Public Economics

Abstract: We analyse the effects of different labour market policies - employment protection, unemployment benefts 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.

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Bibliographic Reference

Lommerud, K, Straume, O and Vagstad, S. 2016. 'Employment protection and unemployment benefits: On technology adoption and job creation in a matching model'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11192