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Employment protections often create two-tiered labor markets with
substantial differences in job security. I estimate the effects of
removing these protections using a quantitative life-cycle model,
where younger workers are more likely to select into precarious
jobs. Workers accumulate human capital when employed and face
the possibility of human capital losses in unemployment. Because
workers with greater job security experience fewer unemployment
spells, they tend to accumulate more human capital over their careers.
I show that reducing employment protections boosts younger
workers’ job-finding rates but lowers human capital, GDP, and employment.
The impacts of these policies differ significantly by age.
