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Welfare‐Improving Employment Protection

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  • MICHÈLE BELOT
  • JAN BOONE
  • JAN VAN OURS

Abstract

This paper derives new results on the welfare effects of employment protection. Using data from 17 OECD countries, we show that there exists an inverse U‐shape relationship between employment protection and economic growth. Using a simple theoretical model with non‐contractible specific investments, we show that over some range increasing employment protection does indeed raise welfare. We also show that the optimal level of employment protection depends on other labour market features, such as the bargaining power of workers and the existence of wage rigidities like the minimum wage.

Suggested Citation

  • Michèle Belot & Jan Boone & Jan Van Ours, 2007. "Welfare‐Improving Employment Protection," Economica, London School of Economics and Political Science, vol. 74(295), pages 381-396, August.
  • Handle: RePEc:bla:econom:v:74:y:2007:i:295:p:381-396
    DOI: 10.1111/j.1468-0335.2006.00576.x
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    1. Wasmer, Etienne, 2002. "Interpreting Europe and US labor markets differences: the specificity of human capital investments," Arbetsrapport 2003:9, Institute for Futures Studies.
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    More about this item

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J8 - Labor and Demographic Economics - - Labor Standards

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