Market Equil + Frictions Reading Questions (OLD) Flashcards
What are the treatment and control groups in the paper?
Treatments: Employees with 0-11 months tenure and employees with 12-23 months tenure
Controls: Employees with 24-48 months tenure
Give 2 assumptions made in the paper?
Common trends
No spillover effects
WHY does change in firing costs affect hiring behaviour?
Firms are forward looking so care about the match quality
If it becomes more expensive to fire people then they’ll want to improve their recruitment practices
What happens if there is a difference between private and social costs of firing an employee?
There will be externalities
Give 3 social costs of firing?
Higher unemployment
Lower consumption & growth
(firms must bear the costs of unemployment benefits)
What are the two counteracting effects of the policy change on the firing hazard of short-tenure employees?
Higher recruitment quality => lower firing hazard
Higher monitoring effort => higher firing hazard
Which of the 2 counteracting firing hazard effects is dominant?
Higher recruitment quality => lower firing hazard
Who are the “insiders” and “outsiders”?
Insiders: High-tenure employees
Outsiders: Lower-tenure employees + unemployed
What does the THEORY say the policy change should do to the quit rate?
People are more likely to quit when their job is secure (i.e. after probationary period)
What does the data say happens to the quit rate after the policy change?
It decreases
What does a long probationary period do to job turnover before and after it ends?
Higher job turnover before probationary period is finished (firms lay off workers when it’s cheaper)
Lower after probationary period because workers are better matched -> have more job security
How does the author check that the results aren’t affected by anticipation of the policy change?
What are the results of this?
After measuring effects immediately before / after the change she excludes the 2 years preceding the policy change and compares the effects.
She finds no difference in the results
What is the objective of the paper?
To identify the impact of the job security legislation policy change (1999) on firms firing behaviour
What strategy did the paper use?
Differences in differences
What is found to be the effect of the policy change?
What does this indicate about the theoretical effects?
Firing hazard lower for both 0-11 months and 12-23 months tenure
Indicates that firms improved their recruitment practices and therefore match quality is better
