Job Protection, Housing Market Regulation and the Youth.

Summary Young Europeans experience high unemployment rates, job instability, and late emancipation. Meanwhile, they do not support reforms weakening protection on long-term contracts. In this paper, we suggest a possible rationale for such reform distaste. When the rental market is strongly regulated, landlords screen applicants with regard to their ability to pay the rent. Protecting regular jobs offers a second-best technology to sort workers, thereby increasing the rental market size. We provide a model where nonemployed workers demand protected jobs despite unemployment and the share of short-term jobs increases, whereas the individual risk of dismissal is unaffected. Our theory can be extended to alternative risks and markets involving correlated risks and commitment under imperfect information.