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

Listed author(s):
  • 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)

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.

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File URL: https://www.degruyter.com/view/j/gej.2011.11.2/gej.2011.11.2.1713/gej.2011.11.2.1713.xml?format=INT
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Article provided by De Gruyter in its journal Global Economy Journal.

Volume (Year): 11 (2011)
Issue (Month): 2 (July)
Pages: 1-14

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Handle: RePEc:bpj:glecon:v:11:y:2011:i:2:n:7
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References listed on IDEAS
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  1. Carmen Pagés & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," IDB Publications (Working Papers) 4119, Inter-American Development Bank.
  2. Axel Dreher, 2005. "Does Globalization Affect Growth? Evidence from a new Index of Globalization," TWI Research Paper Series 6, Thurgauer Wirtschaftsinstitut, Universit�t Konstanz.
  3. Mathias Dolls & Clemens Fuest & Andreas Peichl, 2010. "Automatic Stabilizers and Economic Crisis: US vs. Europe," NBER Working Papers 16275, National Bureau of Economic Research, Inc.
  4. Malul, Miki, 2009. "Older workers' employment in dynamic technology changes," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(5), pages 809-813, October.
  5. DiTella, Rafael & MacCulloch, Robert, 1999. "The consequences of labour market flexibility: Panel evidence based on survey data," ZEI Working Papers B 02-1999, University of Bonn, ZEI - Center for European Integration Studies.
  6. Carmen Pagés-Serra, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Fall 2000), pages 109-154, August.
  7. Malul Miki & Luski Israel, 2009. "The Optimal Policy Combination of the Minimum Wage and the Earned Income Tax Credit," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-24, November.
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