Labor-market frictions, incomplete insurance and severance payments

Lalé, Étienne

doi:10.1016/j.red.2018.10.001

Cited by 8 publications

(3 citation statements)

References 38 publications

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“…Birinci et al (2023) build a HANK model with on-the-job search, yet without search effort, job acceptance or job quitting into nonemployment. Abstracting from search on-the-job and building on Krusell et al (2010), Lalé (2019 studies the impact of severance payments on endogenous job separations, while Eeckhout and Sepahsalari (2023), Herkenhoff et al (2016) and Huang and Qiu (2022) analyze match productivity and sorting with permanent heterogeneity of firms and/or workers.…”

Section: Related Literaturementioning

confidence: 99%

Job Ladder and Wealth Dynamics in General Equilibrium

Kaas,

Lalé,

Siassi

2023

SSRN Journal

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Section: Related Literaturementioning

confidence: 99%

Job Ladder and Wealth Dynamics in General Equilibrium

Kaas,

Lalé,

Siassi

2023

SSRN Journal

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“…We should also add that in our model, wage bargaining is over contracts whereas in both Cozzi and Fella (2016) and Lalé (2019), it is over spot wages. With risk-averse workers and risk-neutral employers, bargaining over contracts Pareto dominates bargaining over spot wages and thus their bargaining outcome is only constrained-efficient.…”

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confidence: 99%

“…This is to eliminate the complexity of the model. For example, in the context of severance pay, Cozzi and Fella (2016) assume the polar opposite case of workers having the full-bargaining power to side-step complications due to the worker-firm bargaining (which is relaxed in a recent paper by Lalé, 2019). 44 We consider the likely consequences of relaxing full-bargaining power assumption on p. 53 in Appendix A under the heading "Discussion of Bargaining Power."…”

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Labor market regulation under self‐enforcing contracts

Avcioglu

Karabay

2020

J Public Economic Theory

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This paper examines the effects of various labor market institutions (policies) on the welfare of workers and employers. We consider self-enforcing contracts between risk-averse workers and riskneutral employers in a labor market with search frictions. Employers promise to smooth out shocks to wages while workers promise long-term commitment to employers. In this environment, regulatory policies can make it easier or harder for employers to keep their promise of wage smoothing, thus influencing the benefit accruing to each party. In our approach, we analyze the joint effect of policies by distinguishing between the financing and spending of funds used in the regulation of the labor market. With regard to financing, layoff tax strictly dominates hiring and payroll taxes on efficiency grounds, whereas the relative ranking of hiring and payroll taxes depend on the type of equilibrium that realizes. On the spending side, while unemployment payment increases workers' welfare at the expense of employers, in-work benefit in the form of a one-off wage subsidy leaves workers' welfare intact but may increase the welfare of employers. 1 | INTRODUCTION The design of labor market policies (institutions) is an important yet a controversial topic. It is important since the well-being of workers and employers depends on specific policies that are in place. It is controversial since there is a trade-off between the flexibility of labor markets and the economic security of workers and there is no consensus on the choice of optimal policy mix among economists and policymakers. Today, labor market reforms constitute a priority in the policy agenda of many countries. There are three important components of these reforms. The first one is 'Employment Protection Legislation (EPL)'. EPL consists of laws adopted by many countries to reduce layoffs and raise job security for employed workers. The second one is 'Unemployment Benefits (UBs)', which provide income in case of unemployment. The final component is 'Active Labor Market Policies (ALMPs)'. These are policies that are designed to facilitate the movement of workers from unemployment to employment. 1 We believe, as in Heckman (2005), that causal effects cannot be defined outside theory. 2 Hence we construct a theoretical model, in which we study the joint effect of labor market institutions, that is, both the financing and spending sides, on the welfare of workers and employers. 3 This is essential since when we look at different country experiences, we see that reforms in the labor market do not take place in isolation. On the financing side, we consider payroll tax, layoff tax, 4 and hiring tax. Both layoff tax and hiring tax are elements of EPL such that they make it costly to fire an existing worker or hire a new worker. On the other hand, payroll tax is a component of 'tax wedge', which is a measure of the difference between labor costs to employers and the corresponding net payment workers receive. In practice, unemployment payment is usually financed by payroll tax paid by emp...

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Severance savings accounts and life-cycle savings

Azevedo,

Bettoni,

Santos

2024

Econ Theory

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Severance savings accounts (SSA) is an important government program aimed at protecting laid-off workers and stimulating savings. We analyze the distributive and aggregate effects of SSA in a rich life-cycle model with heterogeneous agents and incomplete markets. The model is estimated to be consistent with micro and macro data from Brazil. Our analysis reveals that, despite a decrease in voluntary savings, the policy expands aggregate savings, output, and wages, leading to long-run welfare gains. We show that although better risk sharing is important for our findings, the bulk of the gains come from improved efficiency as labor productivity increases and labor supply is reallocated towards highly educated workers and the early stages of the life cycle where agents are generally poorer and leisure is less valued. Interestingly, most of the gains we find accrue to less educated agents as the distribution of this group is skewed towards the informal sector, and they do not directly incur the additional burden from the increase in contributions. We also explore an alternative policy design in which households are allowed to access their severance savings accounts only after retirement, as in a defined contribution pension system. We find that despite greater uncertainty in medical costs later in life, households prefer a more flexible system that provides access to the SSA fund during working-age and after retirement.

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Labor-market frictions, incomplete insurance and severance payments

Cited by 8 publications

References 38 publications

Job Ladder and Wealth Dynamics in General Equilibrium

Job Ladder and Wealth Dynamics in General Equilibrium

Labor market regulation under self‐enforcing contracts

Severance savings accounts and life-cycle savings

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