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