OECD countries displaying stringent employment protection legislation turn out to experience much less pronounced aggregate fluctuations. This paper uses this stylized fact to gauge the impact of employment protection on fluctuations costs. This analysis is run under a dynamic general equilibrium matching model with capital accumulation and risk aversion. Under this framework, implementing in the US an employment protection legislation «in the likes» of that of the European countries would decrease aggregate fluctuations by 10% and increase welfare by 2,2%. This result is strongly at odds with the current literature which has ignored the valuable stabilizing effects of employment protection so far.
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