Lobbying and dismissal dispute resolution systems

Previous studies of dismissal protection have largely been based on the analysis of the rules on the books. However, actual outcomes often rely on the involvement of courts. Our model takes this feature into account and explains how relative lobbying power of unions and employer associations in the legislature and judicial realm, and characteristics of labor court systems shape labor court activity and affect payoffs. Our model predicts that (a) as employer associations become stronger, court activity increases, and firms’ costs and workers’ payoffs decrease; (b) higher court costs tend to reduce the extent of labor court disputes and may, therefore, actually reduce the cost of judicial involvement; (c) court systems that can be lobbied more effectively make reliance on courts less attractive for the trade union if it is the stronger party.