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Does Employment Protection Create Its Own Political Support?

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Author Info
Björn Brügemann () (Yale University and IZA Bonn)

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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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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2286.

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Length: 57 pages
Date of creation: Sep 2006
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Handle: RePEc:iza:izadps:dp2286

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Related research
Keywords: employment protection; wage determination; search and matching; political economy;

Other versions of this item:

Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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    Other versions:
  10. Gerlach, Knut & Levine, David & Stephan, Gesine & Struck, Olaf, 2006. "The acceptability of layoffs and pay cuts : comparing North America with Germany," IAB Discussion Paper 200601, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
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  22. Koeniger, Winfried & Vindigni, Andrea, 2003. "Employment Protection and Product Market Regulation," IZA Discussion Papers 880, Institute for the Study of Labor (IZA). [Downloadable!]
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  25. repec:fth:prinin:465 is not listed on IDEAS
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  27. James J. Heckman & Carmen Pages, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," NBER Working Papers 7773, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Vindigni, Andrea, 2008. "Uncertainty and the Politics of Employment Protection," IZA Discussion Papers 3509, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Vindigni, Andrea, 2008. "Uncertainty and the Politics of Employment Protection," Papers 05-27-2008, Princeton University, Research Program in Political Economy. [Downloadable!]
  3. Vindigni, Andrea, 2008. "Uncertainty and the politics of employment protection," P.O.L.I.S. department's Working Papers 106, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  4. Andrea Vindigni, 2008. "Uncertainty and the Politics of Employment Protection," LABORatorio R. Revelli Working Papers Series 77, LABORatorio R. Revelli, Centre for Employment Studies. [Downloadable!]
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This page was last updated on 2009-11-23.

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