Discussion paper

DP12112 Job Mobility and Creative Destruction: Flexicurity in the Land of Schumpeter

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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Citation

Zweimüller, J and F Kramarz (eds) (2017), “DP12112 Job Mobility and Creative Destruction: Flexicurity in the Land of Schumpeter”, CEPR Press Discussion Paper No. 12112. https://cepr.org/publications/dp12112