Shocks and Endogenous Institutions: An Agent-based Model of Labor Market Performance in Turbulent Times

Authors:
Christian W. Martin;Michael Neugart
Affiliations:
Centre for Globalisation and Governance, Universität Hamburg, Hamburg, Germany 20146;School of Economics and Management, Free University of Bozen/Bolzano, Bozen, Italy 39100
Venue:
Computational Economics
Year:
2009

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Abstract

We develop an agent-based model of labor market regulation to study the consequences of employment protection legislations for labor market performance. Unlike most of the existing studies of labor market regulation we endogenize the institutional setting. Workers cast their vote on labor market regulation depending on the past payoffs that they accrued when one of two competing parties with different labor market policy platforms was in power. We identify important interactions with exogenous shocks. In more turbulent economic times, employment protection systems can affect labor market performance for some periods even after the shock has subsided.