Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 322:
How Do Layoff Costs Affect Employment?

Lars Ljungqvist ()

Abstract: General equilibrium analyses of layoff costs have had mixed messages on the implications for employment. This paper brings out the economic forces at work in different frameworks and explains the disparate results. Since private agents perceive layoff costs as equivalent to a less productive technology, these costs tend to have negative employment effects in models with employment lotteries where the number of employed can be reduced at a low cost to individual agents because of the collective sharing of aggregate consumption. In search models where agents are left to fend for themselves, layoff costs have the opposite tendency of lowering unemployment when such costs reduce the amount of labor reallocation. Lower frictional unemployment is thus attained at the cost of a less efficient labor allocation. Matching models have this very same tendency under the assumption that layoff costs do not alter the relative split of the match surplus between firms and workers. In contrast, if layoff costs increase workers' relative share of the surplus, matching models tend to post sharp increases in unemployment in response to layoff costs.

Keywords: Layoff costs; unemployment; (follow links to similar papers)

JEL-Codes: E24; J63; J68; (follow links to similar papers)

29 pages, August 5, 1999

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

hastef0322.pdf.zip    PDF-file (zipped) (133kB) 
hastef0322.pdf    PDF-file (219kB) 
hastef0322.ps.zip    PKZipped PostScript (66kB) 
hastef0322.ps    PostScript file (295kB) 
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Helena Lundin ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:hastef:0322 This page was generated on 2014-12-14 19:22:57