Working Paper

Firing Costs in a Business Cycle Model with Endogenous Separations


  • Wesselbaum
  • D.
Publication Date

This paper introduces productivity-dependent firing costs into an otherwise standard endogenous

separations matching model. We suggest an alternative to the standard fix cost approach and account

for empirical evidence emphasizing that firing costs vary across workers. We show that the model

with firing costs outperformes the model without firing costs and replicates the empirical facts fairly well. Furthermore, we present cross-country evidence that countries with stricter employment

protection have a weaker Beveridge curve relation and surprisingly more volatile job flow rates.


JEL Classification
E24, E62, J64

Key Words

  • Beveridge curve
  • Endogenous Separations
  • Firing Costs
  • Second Moments of Job Flows