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Does Employment Protection Create Its Own Political Support?

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Author Info

  • Brügemann, Björn

    ()
    (VU University Amsterdam)

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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Bibliographic 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
Date of revision:
Publication status: published in: Journal of the European Economic Association, 2012, 10 (2), 369 - 416
Handle: RePEc:iza:izadps:dp2286

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

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References

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Citations

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Cited by:
  1. Andrea Vindigni, 2008. "Uncertainty and the Politics of Employment Protection," LABORatorio R. Revelli Working Papers Series 77, LABORatorio R. Revelli, Centre for Employment Studies.
  2. Andrea Vindigni & Cristina Tealdi, 2012. "Uncertainty and the Politics of Employment Protection," Working Papers 6/2012, IMT Institute for Advanced Studies Lucca, revised May 2013.
  3. Vindigni, Andrea, 2008. "Uncertainty and the Politics of Employment Protection," IZA Discussion Papers 3509, 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. Lucifora, Claudio & Moriconi, Simone, 2012. "Political Instability and Labor Market Institutions," IZA Discussion Papers 6457, Institute for the Study of Labor (IZA).
  6. Vindigni, Andrea, 2008. "Uncertainty and the politics of employment protection," POLIS Working Papers 106, Institute of Public Policy and Public Choice - POLIS.

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