This paper analyzes the role played by five labor policy instruments (firing tax, hiring subsidies, taxation, unemployment benefits and tax structure) in a matching model with endogenous job destruction, when search externalities are not internalized and the market solution is inefficient. Since the theoretical model does not show univocal effects on equilibrium unemployment of some policy tools (such as hiring subsidies and firing tax), we propose a calibration and a numerical simulation of the model, in order to verify their real impact on unemployment and labor market structure. Results show that if, as is reasonable to assume, there are frictions on the labor market that generate search externalities, a labor market regulation becomes desirable and can be aimed at the internalization of externalities through an appropriate combination of labor policy instruments. In particular, our results have highlighted the crucial role of hiring subsidies and progressive taxation, not only for the achievement of the optimal solution, but also for supporting some forms of passive labor policies, mainly unemployment benefits and employment protection.

Labor market policies in matching models. do externalities matter? / Tilli, Riccardo. - In: THEORETICAL ECONOMICS LETTERS. - ISSN 2162-2078. - 9:4(2019), pp. 816-833.

Labor market policies in matching models. do externalities matter?

Riccardo Tilli
Primo
2019

Abstract

This paper analyzes the role played by five labor policy instruments (firing tax, hiring subsidies, taxation, unemployment benefits and tax structure) in a matching model with endogenous job destruction, when search externalities are not internalized and the market solution is inefficient. Since the theoretical model does not show univocal effects on equilibrium unemployment of some policy tools (such as hiring subsidies and firing tax), we propose a calibration and a numerical simulation of the model, in order to verify their real impact on unemployment and labor market structure. Results show that if, as is reasonable to assume, there are frictions on the labor market that generate search externalities, a labor market regulation becomes desirable and can be aimed at the internalization of externalities through an appropriate combination of labor policy instruments. In particular, our results have highlighted the crucial role of hiring subsidies and progressive taxation, not only for the achievement of the optimal solution, but also for supporting some forms of passive labor policies, mainly unemployment benefits and employment protection.
2019
matching models; labor market policies; search externalities
01 Pubblicazione su rivista::01a Articolo in rivista
Labor market policies in matching models. do externalities matter? / Tilli, Riccardo. - In: THEORETICAL ECONOMICS LETTERS. - ISSN 2162-2078. - 9:4(2019), pp. 816-833.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/1290951
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