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Financial incentives and labor market duality

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Abstract
The French labor market is divided between workers in permanent jobs and those who alternate fixed-term contracts with unemployment spells. Among other public policies aiming at reducing this duality, financial incentives could induce employers to lengthen contract duration or favor permanent contracts. This article develops a matching model fitted to the French labor-market characteristics and calibrated on French data. A gradual decrease in unemployment contributions or a firing tax reduces the duality but increases market rigidity and lowers labor productivity. However, decreasing unemployment contributions gradually is less favorable for new entrants than a firing tax and lengthens unemployment spells. An additional contribution levied on short-term contracts to finance a bonus for permanent-contract hirings also decreases labor-market duality and increases activity but without negative impacts on labor-market flexibility and productivity

Suggested Citation

  • Clémence Berson & Nicolas Ferrari, 2014. "Financial incentives and labor market duality," Documents de travail du Centre d'Economie de la Sorbonne 14061, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:14061
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    Cited by:

    1. Pierre Cahuc & Olivier Charlot & Franck Malherbet & Helène Benghalem & Emeline Limon, 2020. "Taxation of Temporary Jobs: Good Intentions with Bad Outcomes?," The Economic Journal, Royal Economic Society, vol. 130(626), pages 422-445.
    2. C. Berson & N. Ferrari, 2016. "What policy to reduce labour market segmentation?," Rue de la Banque, Banque de France, issue 35, december..
    3. Clémence Berson, 2018. "Fixed-Term Contracts and Labor Market Duality in France," De Economist, Springer, vol. 166(4), pages 455-476, December.

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    More about this item

    Keywords

    Duality; public policies;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy

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