Martin Kerndler receives this year's Young Economist Award. The prize is given each year to young scholars under the age 35. He received the award for his work on Contracting frictions and inefficient layoffs of older workers due to the high relevance of the topic for economic policy making.
ABSTRACT: In light of the low re-employment opportunities that workers above age 55 face in continental Europe, inefficiently high job layoff rates among older workers may generate a significant loss in aggregate employment, output, and welfare. Inefficient layoffs may arise from frictions in wage contracting. This paper assumes that wages can be contingent on age, but not on match productivity. I assess the micro- and macroeconomic effects of this friction on different age groups in a directed search model of the labor market. First, I find that the contracting friction particularly reduces the employment rate of the elderly, while employment of prime-age workers is less affected. Second, I find that reducing generosity of early retirement arrangements boosts employment among the elderly, but that these positive effects are lowered by the friction. Restricting access to early retirement should therefore be complemented by labor market policies that improve firms’ willingness to keep elderly workers employed.
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