Layo¤Costs and E¢ ciency with Asymmetric Information
نویسنده
چکیده
Wage determination under asymmetric information generates ine¢ ciencies due to excess turnover. Layo¤ taxes can improve e¢ ciency. We show that ine¢ cient separations can even be fully removed with xed separation taxes in the case where the relevant private information is exponentially distributed. With search frictions, such policies a¤ect the fallback option of labor market participants, hence general equilibrium e¤ects are considered. A second instrument entry costs or subsidies, is required, since layo¤ taxes cannot correct both for ine¢ cient separations and search externalities. JEL codes: J60, J41.
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