In this paper we analyse the employment implications of firing restrictions. We find that when a recession is expected and the trend rate of productivity growth is small, a rise in firing costs affects mainly the hiring decision. Thus there is a negative effect on average employment. When, on...

Strong hysteresis in the labour market (see Cross, 1995) requires workers to be heterogeneous in terms of the cost of hiring and firing. We show how such heterogeneity arises naturally in labour markets due to differences in workers’ age by showing that both the hiring and the firing...

This paper provides an explanation for the observed positive relationship between youth unemployment and the cost of firing workers. When the cost of firing workers is high, firms only fire when the present discounted value of future losses is high, in which case they gain little by postponing...