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Welfare-Improving Employment Protection

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  • MICHELE BELOT
  • JAN BOONE
  • JAN VAN OURS

Abstract

This paper derives new results on the welfare effects of employment protection. Using data from 17 OECD countries, we show that there exists an inverse U-shape relationship between employment protection and economic growth. Using a simple theoretical model with non-contractible specific investments, we show that over some range increasing employment protection does indeed raise welfare. We also show that the optimal level of employment protection depends on other labour market features, such as the bargaining power of workers and the existence of wage rigidities like the minimum wage. Copyright (c) The London School of Economics and Political Science 2007.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 74 (2007)
Issue (Month): 295 (08)
Pages: 381-396

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Handle: RePEc:bla:econom:v:74:y:2007:i:295:p:381-396

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  1. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  2. Teulings,Coen & Hartog,Joop, 1998. "Corporatism or Competition?," Cambridge Books, Cambridge University Press, number 9780521590730, April.
  3. Peter Rühmann & Jens Südekum, 2001. "Severance Payments and Firm-Specific Human Capital," Departmental Discussion Papers 111, University of Goettingen, Department of Economics.
  4. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  5. bertola, G. & Rogerson, R., 1996. "Institutions and Labor Reallocation," Papers 272, Banca Italia - Servizio di Studi.
  6. Caballero, R-J & Hammour, M-L, 1996. "The Macroeconomics of Specificity," Working papers 96-25, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
  8. Belot, M.V.K. & Ours, J.C. van, 2001. "Unemployment and labor market institutions: An empirical analysis," Open Access publications from Tilburg University urn:nbn:nl:ui:12-89213, Tilburg University.
  9. Kuhn, Peter, 1992. "Mandatory Notice," Journal of Labor Economics, University of Chicago Press, vol. 10(2), pages 117-37, April.
  10. Wasmer, Etienne, 2002. "Interpreting Europe and US Labor Markets Differences: The Specificity of Human Capital Investments," IZA Discussion Papers 549, Institute for the Study of Labor (IZA).
  11. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
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