Job-Specific Investment and the Cost of Dismissal Restrictions: The Case of Portugal

Author/Editor:

H. Takizawa

Publication Date:

April 1, 2003

Electronic Access:

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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:

Using a search and matching labor market equilibrium model, this paper quantifies lost labor productivity and consumption per worker that emerges from the restrictions on dismissals. Dismissal restrictions hamper the efficient reallocation of workers, with workers remaining longer in jobs. But the restrictions also tend to induce job-specific investments. A calibration exercise applied to Portugal suggests that the restrictions on dismissal slow the pace of worker reallocation and cause substantial losses of labor productivity and consumption. Although lower worker mobility induces job-specific investment that offsets part of the labor productivity and consumption losses, the size of this offsetting effect is, at most, modest.

Series:

Working Paper No. 2003/075

Subject:

Labor Labor markets Labor productivity Production Productivity Unemployment Unemployment rate Wages

English

Publication Date:

April 1, 2003

ISBN/ISSN:

9781451849752/1018-5941

Stock No:

WPIEA0752003

Pages:

29

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