Job Protection, Housing Market Regulation and the Youth

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 very 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 non-employed workers demand protected jobs despite unemployment and the share of short-term jobs increase, whereas rents, wages and the individual risk of dismissal are unaffected.