• Media type: E-Book
  • Title: Pareto-Improving Firing Costs?
  • Contributor: Karabay, Bilgehan [Author]; McLaren, John [Other]
  • Published: [S.l.]: SSRN, [2011]
  • Extent: 1 Online-Ressource (49 p)
  • Language: English
  • DOI: 10.2139/ssrn.1750392
  • Identifier:
  • Origination:
  • Footnote: Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments January 28, 2011 erstellt
  • Description: We examine self-enforcing contracts between risk-averse workers and risk-neutral firms (the ‘invisible handshake') in a labor market with search frictions. Employers promise as much wage smoothing as they can, consistent with incentive conditions that ensure they will not renege during low-profitability times. Equilibrium is inefficient if these incentive constraints bind, with risky wages for workers and a risk premium that employers must pay. Mandatory firing costs can help, by making it easier for employers to promise credibly not to cut wages in low-profitability periods. We show that firing costs are more likely to be Pareto-improving if they are not severance payments, or (for affluent economies) if the economy is open
  • Access State: Open Access