Firing Costs and Business Cycle Fluctuations
This paper considers a real business cyclemodel with establishment
level dynamics and uses it to analyze the effects of firing taxes. It finds that the
firing taxes have significant consequences on business cycle fluctuations. The
largest effects are on aggregate employment, which becomess less variable and
more persistent. While the business cycle effects of firing taxes are sizable, their
welfare consequences are completely dominated by their steady state effects.