Employment Protection in Dual Labor Markets: Any Amplification of Macroeconomic Shocks?

Abstract

"This paper studies the effects of labor market duality in terms of employment legislation protection (EPL) on labor market volatilities. Modeling contractual heterogeneity through a gap in EPL of temporary and permanent workers (weakly protected temporary/highly protected permanent contracts), I simulate both supply and demand shocks in a New Keynesian model with unemployment. I find that unemployment fluctuations follow an inverted U-shape over the magnitude of the EPL gap: small EPL gaps amplify, while large EPL gaps dampen the reaction of unemployment. In a subsequent empirical analysis, I find that the model’s predictions are consistent with panel data for a large set of OECD countries. Uncovering the non-linear course of unemployment volatility helps reconcile previous divergent research results." (Author's abstract, IAB-Doku, © De Gruyter) ((en))

Cite article

Lochner, B. (2024): Employment Protection in Dual Labor Markets: Any Amplification of Macroeconomic Shocks? In: The B.E. Journal of Macroeconomics, Vol. 24, No. 1, p. 249-304., accepted on September 27, 2023. DOI:10.1515/bejm-2023-0044