A Pure Theory of Job Security and Labour Income Risk

摘要: Models of labour market equilibrium where forward-looking decisions maximize both profits and income on a risk-neutral basis offer valuable insights into the effects employment protection legislation. Since behaviour in presumes perfect insurance, however, job security provisions plays no useful role such models. This paper studies stylized model dynamic interactions reallocation costs are partly financed by uninsured workers' consumption flows. In resulting second-best equilibrium, that shift to employers can increase productive efficiency if their administrative dead-weight not too large, welfare as long employers' firing at least finance mobility.