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Employment Protection Legislation and Its Impact on the Elasticity of Employment in OECD Countries

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  • Eugeniusz Kwiatkowski
  • Przemysław Włodarczyk

Abstract

This article explores the impact of employment protection legislation on the elasticity of employment with respect to GDP. We present the essence and scope of changes in employment protection and specify the theoretical mechanisms of its impact on the labor market. We also measure this impact using data for 23 OECD countries in the 2002-2014 period. In the short term, we should expect the existence of a non-linear (U-shaped) relationship between the level of employment protection legislation (EPL) and the elasticity of employment. In the long term, however, EPL is perceived as neutral for the level of employment as flexible wages enable employers to accommodate changes in the labor market situation. The hypothesis of the long-term neutrality of EPL for labor market categories was confirmed with the use of panel cointegration tests. The hypothesis concerning the impact of EPL on short-term labor market adjustments was confirmed only for the global crisis period.

Suggested Citation

  • Eugeniusz Kwiatkowski & Przemysław Włodarczyk, 2017. "Employment Protection Legislation and Its Impact on the Elasticity of Employment in OECD Countries," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 29-53.
    • Handle: RePEc:sgh:gosnar:y:2017:i:3:p:29-53
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    More about this item

    Keywords

    prawna ochrona zatrudnienia; elastyczność zatrudnienia; U-kształtna zależność; panelowy model korekty błędem;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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