General Equilibrium Evaluation of Temporary Employment

Yang, Guanyi (2017): General Equilibrium Evaluation of Temporary Employment.

Abstract

This paper studies the response of firms in an environment with heightened idiosyncratic risk and dual labor markets, a regular market with firing rigidity and a frictionless temporary labor market. I find that firing rigidity induces firms to switch from regular employment to temporary employment, and heightened risks amplify such behavior. Efficiency and welfare loss from friction and risk, though alleviated by a small extent, cannot be fully compensated by having temporary employment. This study also first extends the literature of temporary employment by examining its impact in the U.S. labor market.

• Item Type: MPRA Paper
• Language: English
• Keywords: Labor market misallocation, temporary employment, firing costs, idiosyncratic uncertainty, general equilibrium, heterogeneous agents
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C68 - Computable General Equilibrium Models; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General

References

Aguirregabiria, V., Alonso-Borrego, C., 2014. Labor contracts and flexibility: evidence from a labor market reform in spain. Economic Inquiry 52, 930–957.

Alonso-Borrego, C., Fern´andez-Villaverde, J., Gald´on-S´anchez, J. E., 2005. Evaluating labor market reforms: a general equilibrium approach. Tech. rep., National Bureau of Economic Research.

Alvarez, F., Veracierto, M., 2006. Fixed-term employment contracts in an equilibrium search model. Tech. rep., National Bureau of Economic Research.

Atkenson, A., Khan, A., Ohanian, L., 1996. Are data on industry evolution and gross job turnover relevant for macroeconomics? Carnegie-Rochester Conference Series on Public Policy 44, 215–250.

Autor, D. H., Houseman, S. N., 2010. Do temporary-help jobs improve labor market outcomes for low-skilled workers? evidence from” work first”. American Economic Journal: Applied Economics pp. 96–128.

Bentolila, S., Saint-Paul, G., 1992. The macroeconomic impact of flexible labor contracts, with an application to spain. European Economic Review 36, 1013–1047.

Blanchard, O., Landier, A., 2002. The perverse effects of partial labour market reform: fixed-term contracts in france. The Economic Journal 112, F214–F244.

Boeri, T., 1999. Enforcement of employment security regulations, on-the-job search and unemployment duration. European Economic Review 43, 65–89.

Booth, A. L., Francesconi, M., Frank, J., 2002. Temporary jobs: stepping stones or dead ends? The economic journal 112, F189–F213.

Cabrales, A., Hopenhayn, H. A., 1997. Labor-market flexibility and aggregate employment volatility. In: Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46, pp. 189–228.

Cahuc, P., Postel-Vinay, F., 2002. Temporary jobs, employment protection and labor market performance. Labour economics 9, 63–91.

Christiano, L. J., Fitzgerald, T. J., 2003. The band pass filter*. international economic review 44, 435–465. 23

Comin, D. A., Philippon, T., 2006. The rise in firm-level volatility: Causes and consequences. In: NBER Macroeconomics Annual 2005, Volume 20 , MIT Press, pp. 167–228.

Cooper, R. W., Willis, J. L., 2001. The economics of labor adjustment: mind the gap. Tech. rep., National bureau of economic research.

da Silva, A. D., Turrini, A., et al., 2015. Precarious and less well-paid? wage differences between permanent and fixed-term contracts across the eu countries. Tech. rep., Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

David, H., Katz, L. F., Krueger, A. B., 1997. Computing inequality: have computers changed the labor market? Tech. rep., National Bureau of Economic Research.

Faccini, R., 2014. Reassessing labour market reforms: Temporary contracts as a screening device. The Economic Journal 124, 167–200.

Garibaldi, P., Violante, G. L., 2005. The employment effects of severance payments with wage rigidities. The Economic Journal 115, 799–832.

G¨uell, M., 2000. Fixed-term contracts and unemployment: an efficiency wage analysis. Industrial Relations Section Working Paper .

Hall, R. E., 2002. Industry dynamics with adjustment costs. Tech. rep., National Bureau of Economic Research.

Hamermesh, D. S., 1993. Labor demand and the source of adjustment costs. Tech. rep., National Bureau of Economic Research.

Hansen, G. D., 1985. Indivisible labor and the business cycle. Journal of monetary Economics 16, 309–327.

Holmlund, B., Storrie, D., 2002. Temporary work in turbulent times: the swedish experience. The economic journal 112, F245–F269.

Hopenhayn, H., Rogerson, R., 1993. Job turnover and policy evaluation: A general equilibrium analysis. Journal of political Economy pp. 915–938.

Houseman, S. N., Heinrich, C., 2015. Temporary help employment in recession and recovery. Available at SSRN 2605512 .

Khan, A., Thomas, J. K., 2003. Nonconvex factor adjustments in equilibrium business cycle models: do nonlinearities matter? Journal of monetary economics 50, 331–360. 24

Kilcoyne, P., 2005. Occupations in the temporary help services industry. Occupational employment and wages pp. 6–9.

Lin, C.-Y., 2016. The effects of skill-biased partial labor reforms on the macroeconomic outcomes. Economic Research .

Melchionno, R., 1999. The changing temporary work force: Managerial, professional, and technical workers in the personnel supply services industry. Occupational Outlook Quarterly 43, 24–32.

OECD, 2013. OECD Employment Outlook-2013 Edition. Organisation for Economic Cooperation and Development.

Peck, J., Theodore, N., 2007. Flexible recession: the temporary staffing industry and mediated work in the united states. Cambridge Journal of Economics 31, 171–192.

Restuccia, D., Rogerson, R., 2008. Policy distortions and aggregate productivity with heterogeneous establishments. Review of Economic dynamics 11, 707–720.

Restuccia, D., Rogerson, R., 2013. Misallocation and productivity. Review of Economic Dynamics 16, 1–10.

Rogerson, R., 1988. Indivisible labor, lotteries and equilibrium. Journal of monetary Economics 21, 3–16.

Schreft, S. L., Singh, A., 2003. A closer look at jobless recoveries. Economic Review-Federal Reserve Bank of Kansas City 88, 45.

Schreft, S. L., Singh, A., Hodgson, A., 2005. Jobless recoveries and the wait-and-see hypothesis. Economic Review-Federal Reserve Bank of Kansas City 90, 81.

Seliski, J., 2015. Essays on Labor Market Frictions and Macroeconomics. Ph.D. thesis, University of Minnesota.

Tauchen, G., 1986. Finite state markov-chain approximations to univariate and vector autoregressions. Economics letters 20, 177–181.

U.S. Department of Labor, 2015. Temporary employees .

Veracierto, M., 2000. What are the short-run effects of increasing labor market flexibility? .

Veracierto, M., 2008. Firing costs and business cycle fluctuations. International Economic Review 49, 1–39. 25

Wachter, M. L., Estlund, C. L., 2012. Research handbook on the economics of labor and employment law. Edward Elgar Publishing.