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Title: Evaluating Labor Market Reforms: A General Equilibrium Approach
Authors: Alonso-Borrego, Cesar
Fernandez-Villaverde, Jesus
Galdon-Sanchez, Jose
Keywords: fixed-term contracts
firing costs
general equilibrium
heterogeneous agents
Issue Date: 1-May-2004
Series/Report no.: Working Papers (Princeton University. Industrial Relations Section) ; 487
Abstract: Job security provisions are commonly invoked to explain the high and persistent European unemployment rates. This belief has led several countries to reform their labor markets and liberalize the use of fixed-term contracts. Despite how common such contracts have become after deregulation, there is a lack of quantitative analysis of their impact on the economy. To fill this gap, we build a general equilibrium model with heterogeneous agents and firing costs in the tradition of Hopenhayn and Rogerson (1993). We calibrate our model to Spanish data, choosing in part parameters estimated with firm-level longitudinal data. Spain is particularly interesting, since its labor regulations are among the most protective in the OECD, and both its unemployment and its share of fixed-term employment are the highest. We find that fixedterm contracts increase unemployment, reduce output, and raise productivity. The welfare effects are ambiguous.
Appears in Collections:IRS Working Papers

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