The seminar will discuss ongoing work on the macroeconomic effects of labor market policies aiming to prevent job separations (e.g. firing restriction, short term work).

During downturns, unemployment risk increases, which may induce people to engage in precautionary savings and lower consumption demand, thereby amplifying the recession.

This channel, emphasized by a recent literature employing so-called Heterogenous Agents New Keynesian (HANK) models, suggests that policies affecting layoff decisions may induce substantial stabilizing effects.

In turn, the project aims to provide a baseline model to study the cyclical effects of labor market rigidity and business cycle policies such as short-term work in the presence of uninsurable income risk as well as income- and wealth heterogeneity.

In particular, the talk will present a simple “skeleton model” to be enriched by further work , some associated preliminary results as well as discuss current modelling challenges.