<abstract xmlns="http://www.w3.org/1999/xhtml"><p>Labour market reforms have been undertaken to eliminate labour market rigidities in European countries since 1970s. The important features of the reforms are the reduction in adjustment costs and the introduction of fixed-term contracts (FTC). Some empirical studies point out that employment fluctuations have become more volatile after the reforms. This paper presents a model with FTC and analyzes the effects of the key features of the reforms. Numerical examples show that an expected productivity shock causes the oscillatory behaviour of employment. Moreover, a reduction in adjustment costs amplifies fluctuations. In the labour market literature, a number of studies point out the importance of trade unions in European countries. This paper also analyzes the effects of union influence, and the numerical examples indicate that the stronger union influence leads to larger employment fluctuations.</p></abstract>

Labour market reforms have been undertaken to eliminate labour market rigidities in European countries since 1970s. The important features of the reforms are the reduction in adjustment costs and the introduction of fixed-term contracts (FTC). Some empirical studies point out that employment fluctuations have become more volatile after the reforms. This paper presents a model with FTC and analyzes the effects of the key features of the reforms. Numerical examples show that an expected productivity shock causes the oscillatory behaviour of employment. Moreover, a reduction in adjustment costs amplifies fluctuations. In the labour market literature, a number of studies point out the importance of trade unions in European countries. This paper also analyzes the effects of union influence, and the numerical examples indicate that the stronger union influence leads to larger employment fluctuations.

Labour Market Institutions and Amplification of Employment Fluctuations

Central European Economic Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

{"article-title":"Labour Market Institutions and Amplification of Employment Fluctuations"}

Labour market reforms have been undertaken to eliminate labour market rigidities in European countries since 1970s. The important features of the reforms are...

α	Parameter in production function	0.64
β	Discount factor	0.985
γ	Elasticity of wage with respect to employment rate	1.0
δ	Depreciation rate	0.0125
θ	Wage at zero unemployment	0.35, 1.0, 1.5, or 2.0
τ	Adjustment cost	0.1
s	Saving rate	0.30
N	Labour force	110.0

α	Parameter in production function	0.64
β	Discount factor	0.985
γ	Elasticity of wage with respect to employment rate	1.0, 2.0, 3.0, or 4.0
δ	Depreciation rate	0.0125
θ	Wage at zero unemployment	0.35
τ	Adjustment cost	0.1
s	Saving rate	0.30
N	Labour force	110.0

α	Parameter in production function	0.64
β	Discount factor	0.985
γ	Elasticity of wage with respect to employment rate	1.0
δ	Depreciation rate	0.0125
θ	Wage at zero unemployment	0.35
τ	Adjustment cost	0.0 or 0.1
σ	Turnover rate	0.5
s	Saving rate	0.30
N	Labour force	110.0

Labour Market Institutions and Amplification of Employment Fluctuations

Published Online: Apr 29, 2020

Page range: 164 - 173

DOI: https://doi.org/10.2478/ceej-2019-0010

Keywords
employment fluctuations, fixed-term contracts, trade unions, labour market reforms

© 2019 Toyoki Matsue, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Fig. 1

Fig. 2

Fig. 3

Figure 4

Fig. 5

Parameters in Section 4.1.

Parameters in Section 4.2.

Parameters in Section 3.

Labour Market Institutions and Amplification of Employment Fluctuations

Published Online: Apr 29, 2020

Page range: 164 - 173

DOI: https://doi.org/10.2478/ceej-2019-0010

Keywordsemployment fluctuations, fixed-term contracts, trade unions, labour market reforms

© 2019 Toyoki Matsue, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Fig. 1

Fig. 2

Fig. 3

Figure 4

Fig. 5

Parameters in Section 4.1.

Parameters in Section 4.2.

Parameters in Section 3.

Keywords
employment fluctuations, fixed-term contracts, trade unions, labour market reforms