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Does Employment Protection Create Its Own Political Support?

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  • Björn Brügemann

Abstract

This paper investigates the ability of employment protection to generate its own political support. A version of the Mortensen-Pissarides model is used for this purpose. Under the standard assumption of Nash bargaining, workers value employment protection because it strengthens their hand in bargaining. Workers in high productivity matches benefit most from higher wages as they expect to stay employed for longer. By reducing turnover employment protection shifts the distribution of match-specific productivity toward lower values. Thus stringent protection in the past actually reduces support for employment protection today. Introducing involuntary separations is a way of reversing this result. Now workers value employment protection because it delays involuntary dismissals. Workers in low productivity matches gain most since they face the highest risk of dismissal. The downward shift in the productivity distribution is now a shift towards ardent supporters of employment protection. In a calibrated example this mechanism sustains both low and high employment protection as stationary political outcomes. A survey of German employees provides support for employment protection being more strongly favored by workers likely to be dismissed.

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File URL: http://hdl.handle.net/10.1111/j.1542-4774.2011.01045.x
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Bibliographic Info

Article provided by European Economic Association in its journal Journal of the European Economic Association.

Volume (Year): 10 (2012)
Issue (Month): 2 (04)
Pages: 369-416

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Handle: RePEc:bla:jeurec:v:10:y:2012:i:2:p:369-416

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Cited by:
  1. Vindigni, Andrea, 2008. "Uncertainty and the Politics of Employment Protection," IZA Discussion Papers 3509, Institute for the Study of Labor (IZA).
  2. Vindigni, Andrea, 2008. "Uncertainty and the politics of employment protection," POLIS Working Papers 106, Institute of Public Policy and Public Choice - POLIS.
  3. Lucifora, Claudio & Moriconi, Simone, 2012. "Political Instability and Labor Market Institutions," IZA Discussion Papers 6457, Institute for the Study of Labor (IZA).
  4. Vindigni, Andrea, 2008. "Uncertainty and the Politics of Employment Protection," Papers 05-27-2008, Princeton University, Research Program in Political Economy.
  5. Andrea Vindigni & Simone Scotti & Cristina Tealdi, 2013. "Uncertainty and the Politics of Employment Protection," Carlo Alberto Notebooks 298, Collegio Carlo Alberto.
  6. Andrea Vindigni, 2008. "Uncertainty and the Politics of Employment Protection," LABORatorio R. Revelli Working Papers Series 77, LABORatorio R. Revelli, Centre for Employment Studies.

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