Alain Delacroix

Transitions into Unemployment and the Nature of Firing Costs

We study the effects of firing taxes on labor market outcomes. These taxes, more common in European markets, include all administrative and procedural costs incurred by the firm. As such, they are independent of the dismissed workers skill level. We establish that, for young workers, unemployment incidence increases with skill in high-firing-tax countries, while the opposite holds in economies with low firing taxes. The model is able to replicate these observations, while maintaining unemployment duration and the unemployment rate as decreasing functions of skill in all countries. Because of constant firing taxes, the effective tax rate diminishes with skill. Hence, the size of job destruction costs decreases with skill. Also, high-skill vacancies are more profitable, implying tighter markets. These two reasons generate the skill-incidence pattern. (Copyright: Elsevier)

Should Buyers or Sellers Organize Trade in a Frictional Market

To answer the question in the title, this article characterizes the socially efficient organization of the market with search frictions. The efficient organization depends on the relative elasticity in the supply between the two sides of the market, the costs of participating in the market and organizing trade, and the (a)symmetry in matching. We also show that the social optimum can be implemented by a realistic market equilibrium where the organizers set up trading sites to direct the other side’s search. The results provide a unified explanation for why trade has often been organized by sellers in the goods market, by buyers (firms) in the labor market, and by both sides in the asset market. The analysis also sheds light on how the efficient market organization can change with innovations such as e-commerce and just-in-time production.