Threshold Effects of Dismissal Protection Regulation and the Emergence of Temporary Work Agencies

Yu-Fu Chen and Michael Funke

No 207, Dundee Discussion Papers in Economics from Economic Studies, University of Dundee

Abstract: Labour market regulations aimed at enhancing job-security are dominant in several OECD countries. These regulations seek to reduce dismissals of workers and fluctuations in employment. The main theoretical contribution is to gauge the effects of such regulations on labour demand across establishment sizes. In order to achieve this, we investigate an optimising model of labour demand under uncertainty through the application of real option theory. We also consider other forms of employment which increase the flexibility of the labour market. In particular, we are modelling the contribution of temporary employment agencies (Zeitarbeit) allowing for quick personnel adjustments in client firms. The calibration results indicate that labour market rigidities may be crucial for understanding sluggishness in firms´ labour demand and the emergence and growth of temporary work.

Keywords: Labour Demand; Dismissal Protection Legislation; Firing Costs; Real Options; Temporary Work Agencies; Temporary Employment (search for similar items in EconPapers)
JEL-codes: D81 J23 J58 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2007-10
New Economics Papers: this item is included in nep-lab and nep-reg
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Related works:
Journal Article: Threshold Effects of Dismissal Protection Regulation and the Emergence of Temporary Work Agencies (2009)
Working Paper: Threshold Effects of Dismissal Protection Regulation and the Emergence of Temporary Work Agencies (2008)
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