Employment protection legislation in a frictional labor market
This thesis analyzes the effect of employment protection on labor market outcomes. The thesis focuses on the impact of firing restrictions and the regulation of temporary contracts. In many OECD countries, the employment protection legislation combines high firing restrictions and relatively lax regulation of temporary jobs which is, according to several economists, a source of labor market segmentation.  The first chapter argues that analyzing the effect of employment protection requires to understand how economic agents choose between permanent and temporary contracts. This chapter examines a dynamic employment contract between a risk-averse worker and a risk-neutral firm. I argue in this chapter that the choice between a permanent and a temporary contract is driven by a trade-off between efficient risk-sharing and flexibility.  The second chapter builds a model of the labor market with search frictions,  in which the contracting problem of chapter 1 is embedded. Thus, this chapter proposes a model in which the allocation of agents into permanent and temporary jobs is endogenous to risk-sharing considerations. The model is calibrated to the features of the French labor market during the 2000s and indicates that temporary contracts tend to increase productivity but unemployment as well.  The third chapter proposes a life-cycle model to evaluate the effect of firing costs across different experience and education groups. The model is calibrated using a French labor force survey dataset. Policy experiments suggest that firing costs have a negative effect on employment, which is concentrated on low experience and education workers.
Labor Market Unemployment Employment protection legislation Firing costs Temporary employment Dynamic contract Risk-sharing Search and matching frictions Life cycle