Unions, firing costs, and unemployment

Leonor Modesto*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)


We study the effects of firing costs in unionized economies with heterogeneous workers. We consider an overlapping generations model where workers participate in the labour market both when young and when old. All workers belong to the same union that sets wages unilaterally. We find that at given wages firing costs increase youth unemployment and decrease old-age unemployment. However, once the wage response is considered, firing costs increase both youth and old-age unemployment. Indeed, knowing that when firing costs are higher firms refrain from firing, the union increases the wage of old workers, and, therefore, old-age unemployment increases.
Original languageEnglish
Pages (from-to)509-546
Number of pages38
Issue number3
Publication statusPublished - 2008


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