Working papers

« Waiting for the Prince Charming: Fixed-Term Contracts as Stopgaps »

See the paper and the code on GitHub. Try the latter online using Binder. A discussion about the paper is available on the NEP-DGE blog.

In this paper, I build a simple Mortensen-Pissarides model embedding a dual labor market. I derive conditions for the existence of an equilibrium with coexisting strongly protected open-ended contracts and exogeneously short fixed-term contracts. I also study dynamics after a reform on employment protection legislation. Temporary contracts play the role of fillers while permanent contracts are used to lock up high-productivity matches. High firing costs favor the emergence of a dual equilibrium. Employment protection legislation encourages the resort to temporary employment in job creation. This scheme is intertwined with a general-equilibrium effect: permanent contracts represent the bulk of employed workers and a more stringent employment protection reduces aggregate job destruction. This pushes down unemployment and in turn reduces job creation flows through temporary contracts. The model is calibrated to match the French labor market. Policy experiments demonstrate that there is no joint gain in employment and social welfare through reforms on firing costs around the baseline economy. The optimal policy consists in implementing a unique open-ended contract with a strong cut in firing costs. Increases in firing costs within a dual labor market lead to a sluggish adjustment, while large cuts in firing costs lead to a quick one. The adjustment time of the labor market is highly non-monotonous between these two extremes. Policy-related uncertainty significantly strengthens fixed-term employment on behalf of open-ended employment. Considering extensions, I draw conclusions on the inability of a large class of random-matching models to mimic the distribution of temporary contracts’ duration while maintaining possible the expiring temporary contracts’ conversion into permanent contracts.

Research in Progress

« Fluctuations in a Dual Labor Market »

I build a New-Keynesian DSGE model with a dual labor market. Firms and workers meet through a matching technology à-la Diamond-Mortensen-Pissarides and endogenously choose between an openended contract stipulating a firing tax and a less productive and shorter fixed-term contract. As a result, a trade-off between productivity and flexibility arises at the hiring stage. I use classic Bayesian procedures with data from the Euro Area to estimate the model. The latter replicates well the counter-cyclicality of the share of temporary contracts in job creation, as well as more classic features of a dual labor market. The agents react to shocks essentially through the job creation margin and the contractual composition of the hired workers. Moreover, a general-equilibrium effect arises ; the substitution between temporary and permanent contracts at the hiring stage influences the job seekers’ stock, which in turn impacts the job creation margins. Inflation dynamics depend on newly hired workers’ productivity and contractual composition. Reforms in employment protection legislation entail persistent movements in inflation.

« Martial Sorting and Wealth », with Mehdi Bartal

Americans tend to marry their like, and this is more and more the case. Is marital sorting an important driver of wealth inequality in the US? To answer this question, we propose a life cycle model with discount factor heterogeneity, endogenous marriage and wealth accumulation under borrowing constraints. We solve the intra-household consumption-savings problem when spouses have heterogeneous preferences. We highlight that consumption gains from marriage are crucial to the analysis. We calibrate the model on US data and show that both participation in the marriage market and marital sorting along discount factors have non-negligible impacts on the aggregate level of wealth concentration. Our model predicts that marriage decline reduces inequality while rising marital sorting widens the wealth gap between Americans.

« The Capital and Labor Principle », with Marco Ranaldi