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Flexibility at the Margin and Labor Market Volatility in OECD Countries
Scandinavian Journal of Economics (2012)
  • Héctor Sala, Universitat Autonoma de Barcelona
  • José Ignacio Silva, Universitat de Girona
  • Manuel Toledo, Universidad Carlos III de Madrid

We study the business cycle behavior of segmented labor markets with flexibility at the margin (e.g., just affecting fixed-term contracts) and ask whether these types of labor markets can display similar cyclical volatility as fully deregulated ones. We present a matching model with temporary and permanent jobs where (i) there is a gap in the firing costs associated with these types of jobs, and (ii) there are restrictions in the creation and duration of fixed-term contracts. We show that the scenario of flexibility at the margin provides an intermediate situation, in terms of unemployment volatility, between fully regulated and fully deregulated labor markets. This analysis yields new insights into the interpretation of the recent volatility changes witnessed in the OECD area.

  • Flexibility at the margin,
  • Volatility,
  • Separation costs,
  • Matching model
Publication Date
Citation Information
Héctor Sala, José Ignacio Silva and Manuel Toledo. "Flexibility at the Margin and Labor Market Volatility in OECD Countries" Scandinavian Journal of Economics Vol. 114 Iss. 3 (2012)
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