The role and significance of endogenous firing costs in a matching model with endogenous job destruction

Saltari, Enrico; Tilli, Riccardo

doi:10.1016/j.socec.2009.06.009

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“…On the one hand, Ichino et al . (2003) and Saltari and Ticchi (2009) consider endogenous firing costs and argue that the decision of labor courts are biased by labor market conditions (unemployment rate and labor market tightness). Marinescu (2008) also finds that in the UK when dismissed workers sue their ex‐employers for unfair dismissal, and are still unemployed, a higher unemployment rate has a positive impact on their probability of winning.…”

Section: Introductionmentioning

confidence: 99%

Does Uncertainty of Firing Costs Reduce Hirings?

Chéron

Esselmi

Petitrenaud

2011

Labour

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This paper examines hiring decision under uncertainty of firing costs. We extend the labor demand problem of the firm to account for a random shock that hits the firing cost function. We also consider recursive preferences for the employer in order to separate risk aversion from intertemporal substitution. We find that a rise of the variance of the shock decreases hiring investment if and only if the intertemporal elasticity of substitution is greater than one. The risk aversion parameter does not determine the sign of the uncertainty effect but only its magnitude.Arnaud Chéron (author for correspondence) -Aymen Esselmi -Simon Petitrenaud, EDHEC

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Section: Introductionmentioning

confidence: 99%