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The Role of Employment Protection During An Exogenous Shock To An Economy

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  • Malul Miki

    ()
    (Ben Gurion University of the Negev, Israel)

  • Rosenboim Mosi

    ()
    (Ben Gurion University of the Negev, Israel, The College of Management Academic Studies)

  • Shavit Tal

    ()
    (The College of Management Academic Studies, Israel)

Abstract

This paper explores the role of employment protection when powerful external crises reduce demand for products. We first present a theoretical framework that shows that employment protection has a U-shaped effect on abnormal unemployment during a negative exogenous shock to an economy. Using data from the 33 OECD countries, we analyze how the level of employment protection affected the stability of unemployment rates during the recent global economic crisis. The results suggest that countries with an intermediate level of employment protection will have more stable unemployment rates during a world crisis. The policy implication of our paper is that countries should seek a medium level of employment protection that may act as an automatic stabilizer of the economy on the macro level.

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File URL: http://www.ec.bgu.ac.il/monaster/admin/papers/1010.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Ben-Gurion University of the Negev, Department of Economics in its series Working Papers with number 1010.

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Length: 15 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:bgu:wpaper:1010

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