Deposit-Refundon Labor: A Solution to Equilibrium Unemployment?

January 1, 2000

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper studies the employment effects of a deposit-refund scheme on labor in a simple search-theoretic model of the labor market. It is shown that if a firm pays a deposit to the government when it fires a worker, to be refunded when it employs the same or another worker, the vacancy rate increases and the unemployment rate declines. However, the scheme introduces rigidities in the labor market that may be undesirable in countries wanting to liberalize their labor markets.

Subject: Employment, Labor, Labor markets, Unemployment, Wages

Keywords: A. firm behavior, co-state variable, deposit-refund schemes, Employment, firing costs, firm-worker pairing, hiring subsidies, job search, labor market, Labor markets, rents physical capital, restructuring firm, unemployment, Wages, WP

Pages:
19
Volume:
2000
DOI:
https://doi.org/10.5089/9781451842586.001
Issue:
009
Series:
Working Paper No. 2000/009
Stock No:
WPIEA0092000
ISBN:
9781451842586
ISSN:
1018-5941

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