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The Role of Employment Protection during an Exogenous Shock to an Economy

Author

Listed:
  • Malul Miki

    (Ben-Gurion University of the Negev)

  • Rosenboim Mosi

    (Ben-Gurion University of the Negev and The College of Management Academic Studies)

  • Shavit Tal

    (The College of Management Academic Studies)

  • Tarba Shlomo Yedidia

    (Academic Center of Law and Business and The Open University of 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.

Suggested Citation

  • Malul Miki & Rosenboim Mosi & Shavit Tal & Tarba Shlomo Yedidia, 2011. "The Role of Employment Protection during an Exogenous Shock to an Economy," Global Economy Journal, De Gruyter, vol. 11(2), pages 1-14, July.
    • Handle: RePEc:bpj:glecon:v:11:y:2011:i:2:n:7
    DOI: 10.2202/1524-5861.1713
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    References listed on IDEAS

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    1. Kwiatkowski, Eugeniusz & Włodarczyk, Przemysław, . "Wpływ prawnej ochrony zatrudnienia na rynek pracy w warunkach negatywnego szoku ekonomicznego," Gospodarka Narodowa-The Polish Journal of Economics, Szkoła Główna Handlowa w Warszawie / SGH Warsaw School of Economics, vol. 2012(11-12).
    2. Shoham Amir & Pelzman Joseph, 2011. "A Review of the Crises," Global Economy Journal, De Gruyter, vol. 11(2), pages 1-19, July.
    3. Kwiatkowski, Eugeniusz & Włodarczyk, Przemysław, . "Znaczenie prawnej ochrony zatrudnienia dla elastyczności zatrudnienia w krajach OECD," Gospodarka Narodowa-The Polish Journal of Economics, Szkoła Główna Handlowa w Warszawie / SGH Warsaw School of Economics, vol. 2017(3).
    4. Eugeniusz Kwiatkowski & Przemysław Włodarczyk, 2012. "Wpływ prawnej ochrony zatrudnienia na rynek pracy w warunkach negatywnego szoku ekonomicznego," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 11-12, pages 1-23.
    5. Eugeniusz Kwiatkowski & Przemysław Włodarczyk, 2017. "Employment Protection Legislation and Its Impact on the Elasticity of Employment in OECD Countries," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 29-53.

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