Labor Market Flexibility and Aggregate Employment Volatility

Recent empirical work for the Spanish Economy indicates that after 1984, when the rules for temporary employment were significantly relaced, aggregate employment increased but has become highly volatile. The counterpart of this in the labor microvidence is a significant increase in the hazard rates for match destruction. THis paper develops a model of job creation and destruction with dismissal costs and analyses the effect of introducing a rule by which all jobs terminated within a given period of time are exempt from these costs. The model is calibrated using microevidence on registered social-security job matches for the Spanish economy.Publicad