Essays on the macroeconomic effects of labor market rigidities

This dissertation studies the implications of employment protection regulations on labor market outcomes.; Chapter 1 examines the effects of firing costs in a dynamic general equilibrium model where firms face stochastic demand. It derives analytically two simple closed-form equations, one for the supply of labor, the other for its demand. These equations determine the comparative static effects of changes in firing costs on the labor market. When negative shocks are more likely to occur than positive shocks, and when the frequency of these shocks is high, firing costs have a substantial negative impact on aggregate employment. In addition, product market integration, as it has occurred in the formation of the European Union, induces firms to be more wary of future possible downturns and therefore intensifies the negative consequences of firing costs.; Chapter 2 sets up a discrete-time model to study the effects of firing costs on labor demand under linear adjustment costs. We use as benchmark a paper by Bentolila and Bertola (1990) in which the authors show that firing costs have a negligible effect on the firm's hiring policy and actually increase average long-run employment. Numerical simulations using reasonable parameters values show that, relaxing the assumption of a constant labor attrition rate and allowing for procyclical quits, costly layoffs can have significant negative effects on labor demand.; Chapter 3 describes and examines the available empirical evidence on the relation between employment protection regulations and labor market performance. In particular, we address the problem of constructing reliable and consistent measures of employment protection across country and across time. Simple bivariate regressions show that such measures do not affect the unemployment rate and are negatively associated with the employment population ratio. Finally, we set up a framework to analyze the effects of product market regulation on labor market outcomes.