Hiring and Firing Costs, Adverse Selection and Long-term Unemployment

@inproceedings{Kugler2000HiringAF,
  title={Hiring and Firing Costs, Adverse Selection and Long-term Unemployment},
  author={Adriana D. Kugler and Gilles Saint-Paul},
  year={2000}
}
In this paper, we present a matching model with adverse selection that explains why flows into and out of unemployment are much lower in Europe compared to North America, while employment-to-employment flows are similar in the two continents. In the model, firms use discretion in terms of whom to fire and, thus, low quality workers are more likely to be dismissed than high quality workers. Moreover, as hiring and firing costs increase, firms find it more costly to hire a bad worker and, thus… CONTINUE READING