Enforcement of employment security regulations, on-the-job search and unemployment duration

Contrary to the popular wisdom, 'sclerotic' European labour markets are characterised by relatively large job turnover rates, A model is developed which - unlike standard theories of job matching with on-the-job search - can account for the coexistence of strict employment security regulations, significant job-to-job shifts and high long-term unemployment rates in these countries. This is because: (i) employment security regulations can only be enforced by increasing the number of workers on 'short-term jobs', and (ii) the latter compete for jobs with unemployed jobseekers. Evidence is presented showing that job-finding probabilities of the unemployed are decreasing in the incidence of temporary employment, in line with the predictions of the model. (C) 1998 Elsevier Science B.V. All rights reserved.