Institutions and labor reallocation

Author / Creator

Bertola, Giuseppe

Available as

Online

Summary

Abstract: Despite stringent dismissal restrictions in most European countries, rates of job creation and destruction are remarkably similar across European and North American labor markets. This pa...

Abstract: Despite stringent dismissal restrictions in most European countries, rates of job creation and destruction are remarkably similar across European and North American labor markets. This paper shows that relative-wage compression is conducive to higher employer-initiated job turnover, and argues that wagesetting institutions and job-security provisions differ across countries in ways that are both consistent with rough uniformity of job turnover statistics and readily explained by intuitive theoretical considerations. When viewed as a component of the mix of institutional differences in Europe and North America, European dismissal restrictions are essential to a proper interpretation of both similar patterns in job turnover and marked differences in unemployment flows.

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