Discussion Paper Details

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Title: Job Mobility and Creative Destruction: Flexicurity in the Land of Schumpeter

Author(s): Andreas Kettemann, Francis Kramarz and Josef Zweimüller

Publication Date: June 2017

Keyword(s): creative destruction, flexicurity, job creation, job mobility and Severance pay

Programme Area(s): Labour Economics

Abstract: This paper evaluates the 2003 Austrian severance-pay reform, often advocated as a role model for structural reforms in countries plagued by inflexible labor markets and high unemployment. The reform replaced a system with tenure-based severance payments after a layoff (but not after a quit) by payments into pension accounts that accrue to workers after a layoff as well as after a quit. We identify the reform effects using a regression discontinuity (RD) design and find a substantial increase in job mobility in response to the reform. A search-and-matching model with on-the-job search and tenure-dependent severance payments is structurally estimated using the RD induced empirical moments. Counterfactual policy experiments suggest that flexicurity reforms spur job creation and can substantially reduce unemployment in countries where severance payments are initially high.

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Bibliographic Reference

Kettemann, A, Kramarz, F and Zweimüller, J. 2017. 'Job Mobility and Creative Destruction: Flexicurity in the Land of Schumpeter'. London, Centre for Economic Policy Research.