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Federal Reserve Bank of Chicago
Working Paper Series
What are the short-run effects of increasing labor market flexibility?
Marcelo Veracierto
Abstract

This paper evaluates the short-run effects of introducing labor market flexibility to an economy characterized by large firing taxes. Different reforms are considered: 1) eliminating all firing taxes, 2) introducing flexible new contracts while retaining the firing taxes on workers employed previous to the reform, and 3) introducing temporary contracts. The paper finds that eliminating all firing taxes increases the unemployment rate much more in the short run than in the long run, that introducing new flexible contracts has similar effects as eliminating all firing taxes, and that introducing temporary contracts of short durations can decrease the unemployment rate, but only in the short-run.


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Marcelo Veracierto, What are the short-run effects of increasing labor market flexibility?, Federal Reserve Bank of Chicago, Working Paper Series WP-00-29, 2000.
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Keywords: Labor market ; Temporary employees ; Labor contract
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