Offshoring to a Developing Nation with a Dual Labor Market

AbstractWe investigate the behavior of aggregate hours supplied by workers in permanent (open-ended) contracts and temporary contracts, distinguishing changes in employment (extensive margin) and hours per worker (intensive margin). We focus on the differences between the Great Recession and the start of the COVID-19 Recession. In the Great Recession, the loss in aggregate hours is largely accounted for by employment losses (hours per worker did not adjust) and initially mainly by workers in temporary contracts. In contrast, in the early stages of the COVID-19 Recession, approximately sixty percent of the drop in aggregate hours is accounted for by permanent workers that do not only adjust hours per worker (beyond average) but also face employment losses—accounting for one-third of the total employment losses in the economy. We argue that our comparison across recessions allows for a more general discussion on the impact of adjustment frictions in the dual labor market and the effects policy, in particular the short-time work policy (ERTE) in Spain.

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Dual-Labor Market and Unemployment Compensation

ECONOMICS ◽

10.2478/eoik-2020-0012 ◽

2020 ◽

Vol 8 (2) ◽

pp. 21-35

Author(s):

Taro Abe

Keyword(s):

Labor Market ◽

Wage Rate ◽

Competitive Market ◽

Relative Wage ◽

Dual Labor Market ◽

Unemployment Compensation ◽

Imperfectly Competitive ◽

The Impact ◽

Demand Constraint ◽

Economic Regime

AbstractThis paper discusses the impact of unemployment compensation on the employment and wages of regular and non-regular labor in a dual-labor market. The model in this paper assumes an effective demand constraint and an imperfectly competitive market. The results obtained are as follows. An increase in unemployment compensation increases the wages of regular labor to maintain its productivity. However, this temporarily decreases the employment of regular labor, so that the productivity and wages of non-regular labor decrease. The result is an increase in the relative wage rate of regular labor and the relative amount of non-regular labor employed. This result is independent of any economic regime. In terms of the impact on employment volume, the existence of two regimes, one wage-driven and one profit-driven, is confirmed. However, the effect on employment is weaker if unemployment compensation is financed by taxing profits.

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