Departmental Bulletin Paper The Effects of Skill-biased Partial Labor Reforms on the Macroeconomic Outcomes

Lin, Ching-Yang

(E16-1) 2016-02 , 名古屋大学大学院経済学研究科附属国際経済政策研究センター
Description
Over the past decades several governments have implemented similar labor reforms by increasing the flexibility of hiring unskilled temporary workers, but leaving the skilled workers under the protection of the indefinite-term contract. This paper argues that this type of partial reform may lead to dampened effects and unintended consequences. To assess this argument, I examine and compare the effects of two different types of partial reform in the context of the framework of Hopenhayn and Rogerson (1993). In addition to workers’ heterogeneity in skill, my model considers the search frictions and workers’ decision on labor market participation. The numerical results indicate that reducing the employment protection legislation (EPL) on unskilled workers brings about small effects on improving output, productivity, and welfare, though reducing the income inequality. In comparison, reducing the EPL of skilled workers significantly improves the conditions of macroeconomic aggregates.
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